How Much Rent Can I Afford?
How much rent can I afford?
The answer to this question may be more complex than how it seems on the surface. Housing costs, including rent, are almost always the biggest budget item for the average American. In fact, the average American spends nearly 40% of their monthly budget on housing costs.
How Much of Your Budget Should go to Rent?
Statistically, the average American spends 37% of their monthly budget on rent. The general rule is that you shouldn’t spend more than 30% of your monthly gross income on housing costs, including utilities and home-owner costs. You’ll find 5 steps you can take to determine how much rent you can afford.
1. Calculate Your Total Gross Income
Thus, the first step in calculating how much rent you can afford is calculating your total gross income every month. This could be simple or challenging depending on your relationship status and type of job. If you are salaried, then your monthly gross income should be relatively stable.However, if you’re a freelancer, this could change from month to month.
2. Calculate Your Budget
Knowing your gross monthly income is a necessary first step and will help you determine a ballpark range for what you should be spending, but you’ll also need to calculate a budget to determine what you can actually afford to spend. Remember, your total debt plus housing costs should ideally be no more than 40% of your total gross monthly income.
3. Determine How Much Rent You Can Afford
If you have little or no debt, we suggest primarily you spend between 30-40% of your gross income on housing. Similarly, if you have a lot of debt, we suggest saving as much as you can on housing and focusing on paying down debt and saving/investing.
4. Begin Your Rent Search
Once you have a rent number determined, you can begin your search for housing in your desired area. Start by using the desired rent payment and maximum monthly payment, then search using other desired metrics such as the number of bedrooms, location, amenities, etc.
5. Modify Your Search to Fit Your Rent Budget
So, when your wish list and budget don’t match, the first thing you need to look at adjusting is your wish list. The items that will generally make the biggest impact in terms of overall rent costs are size, location, and condition. Other factors include amenities and type of housing.
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