How Much Rent Can You Afford?

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Paying rent is probably one of the least fun things about being a full-fledged adult. As we all know, rents are rapidly on the rise, which means less square footage for a much higher cost. While we understand that rents are high, it can sometimes be a little tricky to figure out how much we can reasonably afford to pay each month. So what’s the magic formula to determining how much money you should set aside for rent (or is there even one)? Whether you’re moving to a new city, you’re hunting for your first apartment, or you’re looking at your savings account and wondering why it’s not growing each month, it’s always a good idea to examine your finances and figure out how to pay rent without breaking the bank. Here are some things to think about as you try to figure out that perfect number.

How Much Money Do You Make?

This is the most obvious place to start when trying to think about how much rent you’ll be able to afford: how much income do you bring in every single month? If you work an hourly wage job or you’re a freelance worker your numbers may not be 100% predictable, so it’s important to look at the big picture. Look at the last few months of paychecks and come up with an average monthly wage. The golden rule of renting is that you should spend no more than 30 percent of your monthly income on rent, but with sky-high rents in cities like San Francisco or New York (and rapidly rising rents in cities like Denver and Nashville) this number may not be realistic. While looking at your income is a good place to start when examining how much rent you can afford, but it’s not the only determining factor.

How Much Money Do You Owe?

Another big piece of the rent puzzle is calculating how much money you owe to other sources each month. What are your debts? Many of us have student loan payments, car payments, insurance, and credit card bills. Not to mention, you’ll have to calculate the amount you’ll spend on utilities like electricity, gas, water, and other bills like cable or Internet.

The “ideal” household budget allocates about 35 percent of your monthly budget on rent and other housing costs like utilities, 15 percent on debts, 10 percent on savings, 15 percent on transportation, and the other 25 is allocated toward all other expenses like groceries, clothing, entertainment, etc. Of course, everyone’s budget is completely different because everyone’s life circumstances are unique. You may have gotten sick a few years ago and now you have a lot of medical bills, or maybe you want to live in a place where you walk to work so you don’t really need much of a transportation budget. These “ideal” number should only be taken as a base outline that your personal circumstances can alter as needed.

How Far Are You Commuting?

Many people move out to the suburbs because you can often get a little more bang for your buck the further you are from the city center. Suburbia can come at a price, however, when you’re having to pay for transportation to and from work (as well as entertainment). Though a lower price tag on a home or apartment in the suburbs may seem appealing, if you’re spending a large amount of money on gas each month, the costs may not even out. So when you’re looking at areas to search for an apartment in, figure out what you average commute will be at rush hour and how that number translates into gas for your car or public transportation costs. Then, add this into your proposed rent budget as an expense.

Do the Math

Now that you’ve written down numbers for how much money you make per month, how much money you owe in other bills and utilities, and about how much cash it’ll take to get around, you can determine how much money you can feasibly spend on rent each month. For example, if you have take-home pay of about $3,000 a month, 30% of that is $900. If you live in a big city like San Francisco or New York, you know that number won’t get you very far. So this is where you start thinking about all of your debts and how much money it’ll cost for transportation. If you don’t have any credit card or student loan debt (lucky you), then you might be able to easily afford up to 35 or 40 percent on rent each month. Then, look into transportation costs; though you may pay higher rent at one place, if it’s walking distance to work, you’ll be able to hack your transportation budget to almost nothing and can add that to your rent budget.

The important thing to remember is to not stretch yourself so thin financially that it’s a struggle to make it each month. Really think about how much extra money you want to have on hand for fun or for emergencies. You may have a really nice apartment that you can afford, but what good is it if you can’t pay for hardly anything else?

On the other hand, don’t be afraid to see if you rework your budget according to your spending habits to get a better place.You may find an apartment that’s within the 30 percent mark of your income, but it doesn’t really suit your needs. It might be too small, not well kept up, or really far away from work. You can alco consider getting a roommate who will share the rent with you so you can afford something a little closer to work and nicer.

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