The decision to rent a home or apartment instead of choosing to buy a property makes sense for a number of reasons. You might not yet be in a financial position where you can afford the sizable down payment on a mortgage. Or you may not plan on living in an area for 10 or more years, in which case, if you know you’ll be moving, committing to a mortgage doesn’t make a lot of sense. This means you’ll be going apartment hunting, or looking for a townhome to rent, and you’ll be paying that rent every month. But how much should you be paying on rent?
The 30% Rule
One basic rule of thumb when it comes to budgeting out your rent while apartment hunting is known as the 30% rule. If you’re on a fixed salary where you know you’ll be getting the same amount every month, this is much easier to implement. For people without a fixed monthly income, such as freelancers, or people with two or more part-time jobs, this may be a little trickier to calculate, but making a safe average guess should suffice.
The 30% rule is that, quite simply, you should allot no more than 30% of what you make every month—before taxes—to your rent. So if you’re making $2000 a month, gross, for example, then you can safely allot $600 every month towards rent.
Additional Financial Considerations
Of course, if you don’t make a fixed amount every month, or you’re still dealing with a significant debt, such as paying off your student loan, the 30% rule doesn’t account for this. In these cases, you may be safer with the 43% rule, which advises that your total debts in a month should not exceed more than 43% of what you make in a month.
This is a critical part of figuring out your living conditions, and it’s going to have a big impact not just on your apartment hunting, but your quality of life once you move in. If you don’t follow the 30% or 43% rule, you can quickly find yourself spending more than you can feasibly handle, possibly even racking up even more debt to make ends meet. Don’t fall into this trap! Keep in mind these other factors while you’re apartment hunting!
If you want to live in New York, Los Angeles, or some other major American city, be prepared to pay for this. A small apartment in a major American urban center can cost $1500 or more per month! On the other hand, if you’re willing to live in a more suburban or rural area, a 1000 sq. foot apartment can cost $800 or even less per month!
Utilities & Roommates
Other ways you can help to save money are to look at rental offers that may include utilities in the rent. This can mean some great savings. And of course, if you want to increase your budget, looking into sharing an apartment with a roommate or other partner to really give you more choice