Setting a Realistic Rental Budget: How Much Can You Afford? (2024)

FAQs

Setting a Realistic Rental Budget: How Much Can You Afford? ›

Use the 30% Rule.

So, should the 30% Rule even be a general rule at all? The short answer: No. It is an antiquated financial benchmark, and the one-size fits all approach does not work for all.

A popular standard for budgeting rent is to follow the 30% rule, where you spend a maximum of 30% of your monthly income before taxes (your gross income) on your rent. This has been a rule of thumb since 1981, when the government found that people who spent over 30% of their income on housing were "cost-burdened."

Here's an idea of the ideal rent for different salaries based on the 30% rule: If you make $30,000 a year, you can afford to spend $750 a month on rent. If you make $40,000 a year, you can afford to spend $1,000 a month on rent. If you make $50,000 a year, you can afford to spend $1,250 a month on rent.

30% Income Rule

The 30% rule says that your rent should be no more than 30% of your gross monthly income. According to the rule, you can multiply your gross monthly income by 0.30 to determine the maximum rent you can afford.

There are a few ways to ballpark how much you should spend on rent. The 30% rule says no more than 30% of your gross monthly income. The 50/30/20 rule says to allocate 50% of your income to necessary expenses, including rent. But you may need to apply a more holistic approach to reach a number you are comfortable with.

The 50% rule or 50 rule in real estate says that half of the gross income generated by a rental property should be allocated to operating expenses when determining profitability. The rule is designed to help investors avoid the mistake of underestimating expenses and overestimating profits.

According to this rule, if you make $4,000 a month, you should spend no more than $1,200 per month on rent. Sticking to the 30% rule helps ensure you have enough money left over to save or put toward other expenses.

Generally, people say that rent shouldn't exceed 29% of your gross monthly income. So for $20/hr, that would be $3200/month gross, and 29% would be $928. So generally speaking, you should try to be under $930/month for rent and utilities. But again, that still depends on the rest of your bills.

The average cost of a one-bedroom in August 2022 is $1,769, a 39% increase from this time last year, according to Rent.com's monthly report. Meanwhile, the nationwide average monthly cost for a two-bedroom rental in August is $2,105, a 38% increase from a year ago.

Is 50% of your income too much for rent? ›

Spending more than 50% of your income on rent isn't recommended, as you'll be living paycheck to paycheck. You won't be able to save or invest money for the future. If you're currently overspending on rent, solutions include raising your income, finding more affordable housing, or getting a place with a roommate.

Spending around 30% of your income on rent is the golden rule when you're trying to figure out how much you can afford to pay. Spending 30% of your income on rent can help you reach a healthy balance between comfort and affordability. On a median income, 30% should get you an apartment you can truly call home.

How much should you spend on rent? It depends. One popular guideline is the 30% rent rule, which says to spend around 30% of your gross income on rent. So if you earn $3,200 per month before taxes, you could spend about $960 per month on rent.

Whether you're renting or buying a house, it'll be hard to balance other financial goals if your monthly housing costs (rent or mortgage) are more than 25% of your monthly take-home pay—including property taxes and insurance. Even if rent is sky-high in your new city, the 25% rule still applies.

You should spend no more than 25% of your monthly take-home pay on rent. Spending 30% or more will mean not having enough room left over in your budget to put toward other important financial goals like saving for a down payment on a home.

For years, financial experts have recommended a rule of thumb that says people should spend no more than 30% of their gross income on rent. But last year, the average cost to rent an apartment in the U.S. crossed a historic threshold, breaching 30% of the median household income.

Is 30% of your income too much to spend on rent? Yes. You should spend no more than 25% of your monthly take-home pay on rent. Spending 30% or more will mean not having enough room left over in your budget to put toward other important financial goals like saving for a down payment on a home.

Limitations of the 1% Rule

For example, if the median list price in a metro area is over $1 million, the 1% rule would necessitate rents of close to $10,000 per month. In this case, investors would forgo the 1% rule for a more realistic assessment of what makes a viable investment.

The general rule of thumb is that housing costs should be no more than 30% of your gross income. This includes rent or mortgage payments; homeowner association fees; and utilities like gas, electricity, water, and internet.