In 2017, more people were renting in the US than at any time in the previous 50 years.
While most of us live on a monthly budget, there could be times when you might go over budget and need quick cash for paying rent. You would then either get an emergency loan for rent, or dig into your emergency fund to cover the expense.
This isn’t always easy. Rent will be one of your biggest monthly expenses, but what proportion of your earnings should you devote to it?
If you’re looking for somewhere to rent, read on as we take a look at the best way to decide how much to spend on rent.
The 30% Rule
There are several “rules” that people use to work out how much to spend on rent.
One of the simplest is the 30% rule. This rule states that you take your gross monthly income, and then work out (yep, you guessed it) 30% of that figure. This is the amount that you should be paying in rent each month.
Now it’s highly unlikely that you’ll find somewhere that is going for exactly the amount that this calculation gives you. The key is that this is the maximum you should be spending. You should find somewhere where the rent is the same as or cheaper than this value. If you go over it, you may find that you struggle to get by.
The 50/30/20 Rule
The 30% rule is a rough and ready calculation but doesn’t take into account any other major outgoings that you might have. That’s where the 50/30/20 rule comes in.
This rule states that you should devote 50% of your take-home pay to the fixed recurring essentials that you pay every month. The biggest of these will be your rent, but it also includes transportation, food, energy bills, etc. 30% will go on entertainment and other things that aren’t strictly essential, and the remaining 20% on saving or paying off debts.
The beauty of this system is that if you have a lot of monthly outgoings then the amount you calculate for rent will reduce, so you’re never living beyond your means.
Use an App to Help
If you want the most accurate method of finding out what you can afford, then you need to take a close look at your incomings and outgoings.
The good news is that there are plenty of budgeting apps that can help you do this. You can track what goes out of your accounts, and what comes in. You can then see exactly what you spend each month, and how much is left over for you to devote to rent.
Make sure you factor in expenses that don’t come every month, such as car repairs or paying for Christmas gifts.
Now You Know How Much to Spend on Rent
We hoped that this has helped you in your quest to figure out how much to spend on rent.
If you’re looking for more great financial advice, then you’re in the right place. We have plenty more articles covering everything from travel finance and real estate to money-saving and home finance.
Whatever you’re looking for we’re sure you’ll find something to help you right here. Feel free to take a good look around.