There are approximately 49 million rental units in the United States.
This means a big chunk of the population rent the property they live in, rather than owning it. This makes spending on rent an important consideration in terms of financial management.
If you don't know how much to spend on rent, there are a few rules of thumb that can guide you.
How Much to Spend on Rent: A Guide
With the amount of choices on the market and huge cost differences, it can be confusing to know how much rent you should pay each month. Here are the most significant factors when you're making your calculations.
Your income will be the most important consideration when you're deciding how much to spend on rent. The more money you make, the more you can afford to spend.
A good rule is you can afford to spend around 30% of your income on rent after taxes. If you subscribe to the idea that you should spend 50% of your income on living expenses, this leaves 20% for other bills and utilities.
Your salary doesn't have to be the only consideration in terms of your spending power. If you have a lot of savings, you can factor that in too.
However, you shouldn't cut into your emergency savings to afford a more expensive place to live.
And one more thing. Just because you can afford an expensive place doesn’t mean you should. Rent is by far the single biggest cost each month for most people. If you can save on this, you’ll have that much more to save, invest, or pay down your debts.
The area you live in is going to determine how much you pay in rent. If you live in a dense city like New York or San Francisco, you're going to be paying a lot more than if you live in a small town or rural area.
Of course, your income in an area like this will usually reflect the higher cost of living. However, if you work remotely or you can choose where to work from, it might be a good idea to avoid higher-rent locations like these, especially if you want more space or other amenities, like being near a certain school district or having outdoor space, for example.
How to Save Money on Rent
If you’re wondering how to afford your monthly rent, there are steps you can take to help you along. Here’s what can directly impact your bottom line.
Have a Strict Budget
This is the first step to take when you're trying to limit your rent cost. If you know what you're willing to spend and you're strict with yourself, you'll find it easier to keep your rent reasonable.
You should calculate this based on the steps we've looked at above. Once you have a number in mind you don't want to go over, don't look at any properties that cost more than that amount.
With every apartment, you’ll have to find a balance of size, cost, location, and amenities. If you have a low budget, you’ll have to budge on at least one of these factors. For example, you can get a bigger place farther out or a more expensive place closer to a city center. Finding the sweet spot and sticking to your budget will give you an idea of what you can expect.
Consider a Longer Commute
You've probably heard the old adage that says the property market is all about location. In most areas with expensive apartments, you'll pay more the closer you get to the middle of the city.
If you work in the middle of a central business district, you might want to get a place as close as possible to the city center. However, opting to spend a bit longer in traffic or on the train in the morning could save you big money on your rent.
Bring in an Extra Tenant
This is perhaps the easiest way to limit your spending on rent if you live in an area where accommodation costs are especially high. If you can't find anything cheap, you may consider splitting the costs with someone else.
If your place has a spare room, this is a straightforward process. As long as your landlord doesn't have a problem with another tenant, you're good to go.
Or you could start your search with a roommate and then split the costs. You could even pay less for a smaller room, or even rent a big house with a few friends. There are lots of options when you opt to share a space. But of course, you might have to give up total privacy. It could be worth it for a while, especially if you’re just getting started, saving up for a goal, or getting back on your feet following a setback.
Finding Accommodations in 2020
When asking "how much should I spend on rent?" think about how you'll go about finding a place.
The COVID-19 pandemic continues to spread in most parts of the world. Until researchers come up with a vaccine that works and distribute it across the country, the effects will continue to be felt in every industry.
The property industry is no different. While people usually try to view many properties before committing to rent one, this isn't always possible given current circumstances.
With this in mind, you'll need to use online property sites as much as you can. Take virtual tours of properties when available.
As a side effect, the pandemic's weakening of the economy has lowered rents in many areas. If you keep your eyes peeled, you might be able to find some great deals.
Getting the Best Possible Deal on Your Next Place
Paying rent is a less than inviting prospect when it takes up too great a percentage of your income.
Knowing how much to spend on rent is the first step toward making sure you don't blow your budget. If you have an amount in mind from the outset, you won't fall victim to an unsustainable bill at the end of each month.
A good guide is to calculate 30% of your take-home income and try to keep in that range. And other tactics, like moving a little farther away, getting a roommate, or forgoing fancy amenities can go a long way toward keeping your pocketbook in tip-top shape.
We hope this guide helps you in your planning process. If you want to forecast your expenses, see what Thinkflow can do for you today.