What Percent of Your Income Should Go Towards Rent?

Finding the perfect apartment goes beyond the ideal layout and location. Your final decision often comes down to asking, how much should my rent be? Splurging on a higher rent can significantly impact the other areas of your budget, so it’s important to make this question a priority. Your personal financial landscape, including debt repayments, savings contributions and lifestyle priorities help inform the ideal rent price for you.

There’s no question why housing is such an important investment. Living in a comfortable space and great location affects every aspect of your daily life. Choosing the best apartment for you comes down to balancing your apartment wish list with your long- and short-term financial goals. Explore our guide on how to figure out how what percentage of your income should go toward rent to maintain financial wellness and maximize your budget.

How Much Should You Budget for Rent?

Every renter’s financial situation is unique. Figuring out what percentage of your income to spend on rent comes down to a range of personal finance details specific to you. On the whole, however, most experts suggest spending less than 30 percent of your income on rent. If you make $60,000 a year, for example, and stick by the one-third rule, you should aim for apartments around $1,660 a month. Potential lenders consider those spending over this amount to be cost-burdened renters. Essentially, renters that surpass the standard thirty percent may get into trouble when paying bills and meeting daily expenses.

Other financial models use the 28/36 rule for determining if a renter is cost burdened. In this case, less than 28 percent of your gross income should go toward housing and less than 36 percent toward your monthly debt payments and housing costs combined. If your monthly debt payments are on the higher side from things like student loans and car payments, you may want to adjust your maximum rental amount to stay within this comfortable limit.

Ideally, you should always give yourself a bit of a buffer when it comes to housing costs. To play it safe, base your ideal rent total on your net pay, or take-home amount. Doing so ensures you will always have plenty of cash on hand to safely set aside the thirty percent way before the first of each month.

The 50/30/20 Budget Rule

How does your rent affect the rest of your budget? By breaking down monthly expenses into three main categories, it becomes easier to spot how rent can tips the scales in other areas of your life. The 50/30/20 rule, conceived by Elizabeth Warren, is a guide for delegating your housing, living, and savings and debt payments each month.

According to this setup:

• 50 percent of your income should go toward essential items including rent, commuting costs, utilities, groceries, insurance, and car payments. These items are unchanging and required for you to maintain your standard of living.
• 30 percent of your income goes toward lifestyle choices such as restaurants and bars, exercise classes, and shopping. Lifestyle categories are more flexible depending on a fluctuating budget or sudden life changes.
• 20 percent of your income is reserved for debt payments and savings goals.

When structuring your budget, begin with essentials — they are the foundation of your spending habits. Rent costs will most likely be the largest portion of your 50 percent, so take the other factors in that category into account when finding the most ideal rent for you. If this main category goes over 50 percent, how will the lifestyle category change? For some, housing takes priority over the lifestyle category and vice versa for others. Use the 50/30/20 rule as a guide and give yourself flexibility depending on your goals and needs.

Other Considerations

Housing costs often include other factors outside of the basic monthly price tag. Some apartments include amenities or arrangements that alter the true cost of living. For example, when searching for your new place, be sure to ask about which utilities are covered by the landlord and which are your responsibility. You can even speak to your realtor or potential landlord about standard monthly electricity and heating costs in the space. Factors such as the age of the apartment and type of HVAC system can greatly determine monthly utility costs. In some apartment complexes, amenities like gym memberships are included for residents, cutting down on costs in the lifestyle category of your budget.

You location also greatly factors into the cost of daily life. Access to public transportation can cut down on gas costs or car payments while major cities may have increased grocery, dining and shopping prices. The trick is finding out where some expenses pay for others. If you are able to walk most places throughout your week, you can save money on transportation to offset higher costs of essentials. If your town has higher property taxes — and therefore higher rents — you may also have access to highly funded town amenities such as good schools, extensive libraries, and other community programs and events.

It is also important to keep your own financial goals in mind when considering housing costs. Perhaps you’re looking to put a down payment on a home in the next five years. Choosing a less expensive apartment in the meantime can help you allocate more money toward the

savings portion of your budget. If you’re an avid traveler, keep in mind how much a higher or lower rent will help you reach your annual goal for excursions and dream vacations. In this way, moving to a new apartment can dictate long-term plans, so take some time to look ahead about where you’d like to be a few years down the line.

Before you begin your apartment hunt, take a minute to figure out what percentage of your income can comfortably go toward rent. Though 30 percent is a good starting place, consider your unique financial arrangement to set yourself up for success. Factors like monthly debt repayments, savings goals for the future, and even your desired lifestyle in a city can contribute to this final number. Determine your ideal rent by taking your whole lifestyle into account — doing so will give you peace of mind as you work toward financial balance in your new home.