How much money should you be spending on rent? It’s a complicated question – in part because there’s no straightforward answer. While there are many expert guidelines for estimating rent based on income, not all of those guidelines may apply to your situation. Knowing what those guidelines are can help you decide how to proceed.
Use the 50/30/20 Rule
The 50/30/20 rule states that you should be applying 50% of your after-tax income to needs, 30% of your income to wants, and the rest should go in savings.
In other words, if you make $4,000 per month after taxes, $2,000 should go toward your rent, utilities, student loans, car payments and so on. $1,200 of that monthly income can be spent on restaurants, movies, etc, and $800 per month should go into your savings.
…Or Use the 30% Rule
The 30% rule says that your monthly rent should not exceed more than 30% of your gross income. So let’s say that you actually earn $4,000 before taxes. Under this scenario, your monthly rent should not exceed $1,200 per month.
Or Just Make a Budget
The fact is that the rules above make good guidelines, but they don’t take into consideration anyone’s individual circumstances. There are many arguments to be made for making your own budget to decide how much you should be spending on your rent. Doing this will allow you to take into consideration factors like your financial goals, the cost of living where you live, your monthly expenses and more.
Maybe you’re spending many hundreds of dollars each month on your student loans. Maybe you live in a high-rent area. Perhaps you’re saving for a big trip in three years. Whatever the circumstances, make a budget that works for you.
- Look for savings where ever you can. Consider switching phone companies or paying for a reduced cable package.
- Don’t forget to put money away in the bank. No matter how high your expenses are, you should always try to save money.
- Work backward from your financial goals. How much do you want to be saving every month? Put this number on your budget first and build the rest of your budget from there.
About the Author: Kathryn Elwell grew up in the Midwest. She has experience in management and human resources, and has been writing on these topics and more for 12 years.