Finding a place to call home can be tough, especially when your budget limits your options. Even so, making sure you can comfortably pay the rent is essential: Spending too much to keep a roof over your head can cause financial and emotional stress. How do you find the ideal situation? Use the following tips to balance your rent with other monthly costs, figure out your percentage of income for rent, and more.
So, how much rent can I afford?
The general rule of thumb is to spend no more than 30 percent of your gross monthly income on rent. For example, say you make $50,000 a year. Your gross monthly income—the money you earn before taxes—would be about $4,167. When you multiply that amount by 0.3 to get your recommended rent budget, you end up with $1,250 per month.
While home hunting, you may find that many landlords require a renter’s gross annual income to be at least 40 times the monthly rent. If that sounds like a lot, don’t panic. It’s the same number as the 30 percent, calculated differently. Using the same example as before, a gross annual income of $50,000 divided by 40 is $1,250 per month.
If you rent a place that costs less than 30 percent of your monthly income, you’ll have a buffer if your rent increases and your salary doesn’t, and more money to spend on other expenses.
What about my other monthly expenses?
While 30 percent is the ideal percentage of income for rent, it doesn’t account for other debts or bills you might have, including student loans and car payments. The higher the burden of your other financial responsibilities, the less you’ll want to spend on rent.
If you carry debt, aim to spend no more than 43 percent of your gross monthly income on your rent and debt payments. Depending on the rental you choose, you may have to factor in other costs such as utilities (water, gas, electricity, internet) and parking or public transit.
You’ll also want renters insurance, which many landlords require you to have. The average renters insurance policy costs only about $17 per month—and it’s totally worth it. Depending on your policy, renters insurance covers your personal property (such as a laptop, a bicycle, musical instruments, or jewelry) if it gets stolen, damaged, or destroyed on the property. Your landlord’s insurance does not cover your possessions.
Using the example above, if you earn $50,000 a year and spend $1,250 per month (30 percent) on rent, you have $162.50 (13 percent) to cover your other recurring bills.