How Much Should You Spend on Rent?

Paying rent might be the biggest monthly expense for many of us. And, of course, before you start searching for a new home, it is important to determine your budget and how much you can afford to spend on rent.

There are many “rules” out there for how much you should spend on rent. Some say to spend 30% of your household income on rent. Others say no more than 40% of your salary, or 25%, or…

Which one is right? How much should you actually spend on rent each month?

There is No One Versatile Method

Probably, you’ve heard about the “30% rule”. It states that you should spend one-third of your gross monthly income on rent. While it can be a good principle to keep in mind while deciding on your rental expenses, you should use your best judgment and consider your current financial situation, needs, and circumstances. After all, no one knows them better than you!

For example, if you live in a big city, such as New York, San Francisco, or Chicago, you can expect to pay way more for an apartment similar to the one your cousin rents in Mobile, Alabama. Also, if you are a young adult who can barely make ends meet, you might have to spend over 30% paying rent and forget about setting aside much of savings for a little bit. 

Get a Clear Picture of Your Income & Expenses

Before you can calculate how much to spend on rent, you’ll have to get some clarity when it comes to your monthly income and expenditures.

So, aside from rent, list out your monthly expenses. Include expected utilities, your cellular plan, groceries, outings, credit card repayments, student loans, commute costs, and everything else you usually would pay for in a month. When in doubt, default to a higher price to ensure you stay in budget later.

Example:

• Groceries – $800
• Cell Phone – $50
• Utilities – $100
• Student Loan – $150
• Credit Card – $50
• Outings – $200
• Insurance – $50
• Subway Ticket – $100
• Beauty & Clothing – $200
• Household Items – $200
• TOTAL = $1,900

Next, deduct all that from your household income (after taxes).

Example:

• Income = $4,000/mo
• Expenses = -$1,900/mo
• REMAINING = $2,100/mo

How much is left over? And, does it sound accurate? If something feels off, you may have forgotten about a significant expense, or you may not be budgeting in your one-off costs correctly.

Determine How Much You’d Like to Set Aside for Savings

Aside from income and expenses (and rent, but we’ll get to that shortly), it’s time to factor in your savings. 

This can be done after calculating rent, of course, but we decided it’s better to write it here beforehand so we can eliminate everything else in the next section and look purely at rent.

Example:

• Saving for House Downpayment – $500/mo
• Saving for Travel – $100/mo
• Saving for Emergencies – $100/mo
• TOTAL = $700/mo

The Rest is Your Monthly Rental Allowance

All that money that’s left – that’s your rental allowance!

Example:

• Income = $4,000/mo
• Expenses = -$1,900/mo
• Savings = -$700/mo
• REMAINING = $1,400/mo

In our example here, we have $1,400 left to spend on rent. Out of our original $4,000 in income, this is exactly 35% of our monthly costs, just over one-third, keeping it right in the middle of the 30-percenters and the 40-percenters.

If what you ended up with seems too little, you may have to revisit your monthly expenses and savings goals and make some reductions. If the number seems too high, go back and do a quick audit in case you miscalculated something above.

Consider Other Related Expenses

While choosing the apartment, you should stay flexible and remember about related expenses. For example, you might find a slightly more expensive home which is within walking distance to your office, but by choosing this place, you’ll be able to save money on transportation costs. Similarly, pay attention to utilities such as water, electricity, and gas and clarify if they are included in rent, or you have to pay extra. 

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There are many ways to figure out how much to spend on rent, and this is but one of them. After all, it all depends on your priorities and financial affairs. If you work from home, you might want to spend a bit extra on rent to ensure you feel comfortable and productive. If you need an apartment solely as a place to sleep, maybe you could lower your budget and put this extra cash towards savings. And remember, with Rentberry, you can find your perfect home no matter how much money you decide to spend on rent!