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How Much Rent Can I Afford?

Rents are rising across America. Knowing how much you should budget for can keep you from being affected by the inflated prices.

Written by Ashlyn Brooks / July 12, 2022

Quick Bites

  • Rents are soaring. It may be time to reevaluate your budget to adapt to the rising prices.
  • If you don’t have one, it could be the right time to adopt a budgeting plan to keep your finances in check.
  • A popular budgeting choice is the 50/30/20 rule. Read on for more.

The real estate market has gone through a crazy shift over the past few years. Home prices are inflated to levels Americans haven't seen since 2006, and rents are also soaring.

That means your existing rent is probably going to go up upon renewal, and anywhere else you look may be similarly out of reach. Paired with inflation that’s driving gas and food prices, among so many other things, higher, it may be time to reevaluate your budget and spending.

We’ll help you take a look at your budget and give you some percentages and insight on what is an appropriate amount to spend on rent.

Inside this article

  1. How much should I spend on rent?
  2. Budget! (Subs in excess?)
  3. The 50/30/20 budget rule
  4. 50/30/20 Example
  5. How much rent is too much rent?
  6. FAQ

What percentage of my income should go towards rent?

Everyone is in a different financial situation, however, most experts will recommend that no more than 30% of your take-home income should go towards rent.[1]

You don’t want the bulk of your monthly take-home pay tied up in rent. If your rent eats up much of your allowance, it can become harder to afford food, utilities, an emergency fund, or paying down any debts you have. This is especially true when inflation is at 40-year highs.

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Look at your budget (including all your app subscriptions)

It’s very important to establish a habit of combing through your monthly expenses.

A sneaky area that many people don’t pay attention to is all the various subscription services they pay for every month. For example, Netflix is only $9.99 per month and that number might seem minimal for a month's worth of access. However, if you also have other subscriptions (Pandora, Spotify, Hulu, etc.) you can see how the $10 spread across handfuls of apps can add up quickly. And that’s just for a basic subscription plan.

App subscriptions are just a subset of your overall budget. It’s important to take a look at how much you spend, on average, for all your other monthly expenses such as:

  • Food

  • Gas

  • Gym membership

  • Entertainment (eating out, movies, theme parks, carnival fairs, concerts, plays, you get the point)

  • Date nights (dinner and a movie could set you back at least $100)

The take-home point here is that it is imperative to break down your expenses to know how rent fits within your budget. Keeping an eye on where your money is going will help you stay away from a paycheck-to-paycheck lifestyle.

The 50/30/20 budget rule

We skimmed the surface of why it's important to look at your budget and how you can spend too much on certain items without even noticing it. It can be difficult to know how much you should allocate to all your monthly expenses. A good starting point is the 50/30/20 rule. This will help you break down your after-tax income into portions of money that will be allocated for needs, wants, and savings.

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50 = Needs

50% of your after-tax income should be spent on the expenses you can’t avoid or that are necessities in your life. This 50% should be budgeted for monthly costs such as:

  • Housing

  • Child care

  • Important medications

  • Food

  • Transportation

  • Utilities

  • Health Insurance

  • Minimum loan and credit card payments

30 = Wants

Sometimes we have difficulty distinguishing between things we need versus things we want.

Try asking yourself: “Do I need this more than I need my electricity to stay on?” Not every situation is that drastic. However, knowing your wants are pre-budgeted will help prevent overspending. Typically your 30% will go towards:

  • Monthly app subscriptions

  • Dining out

  • Date nights

  • Entertainment (concerts, movies, etc.)

  • Contributing to a travel fund

20 = Savings

The final 20% of your budget will be contributions towards savings or paying off any debts you might have. Each budget will be unique in what the primary focus of the 20% will be used for. However, most of the money in this category will go towards:

  • Paying off debt (i.e. credit cards, student loans, personal loans, etc)

  • Funding retirement or investment accounts

  • Padding an emergency fund for life’s unexpected moments

50/30/20 Example

Now that we understand the 50/30/20 rule, let’s see a plan in action. There are many calculators online that are plug-and-play or you can do it by hand at home.[2]

This process is quite simple. First, you’ll figure out your household’s after-tax monthly income and divide it by the percentages of the plan. For example:

  • Monthly Income: $10,000

  • Allowance for needs: $10,000 x 0.5 = $5,000

  • Allowance for wants: $10,000 x 0.3 = $3,000

  • Allowance for savings: $10,000 x 0.2 = $2,000

From there, make sure that you fit all your expenses for the given category into the allotment allowed. Remember that this is a baseline guide. Not every budget will mold to this format. Make adjustments as needed for your situation.

How much rent is too much rent?

Generally, spending anything over the recommended 30% limit on rent is too much. However, depending on where you live in the U.S., sticking to paying the recommended 30% on rent could be a difficult task. Some landlords will require an annual income of 40 to 50 times your cost of rent. Meaning if your rent is $2,000 per month, you would need to bring home $80,000 to $100,000 per year. This could be a steep task for young professionals trying to make their start in certain cities.[3]

“If you find yourself in a situation where a high monthly rent is unavoidable, you’re probably not the only person in the city affected,” says Isaac Tebbs, head of growth at Millions App, a financial products company focused on credit. “A great option to turn to is to look for roommates. If you can find one or two roommates to help split the cost of rent, this would be a massive cost saver and could make all the difference in getting your monthly rent to under the target of 30% of your income.”

FAQ

Is spending 50% too much for rent?

If you are following the 50/30/20 rule, then your rent should fit within 50% of your monthly income. However, it shouldn’t eat up the entire 50%. Remember within that allowance you have to budget your other needs for the month (i.e. utilities, insurance, minimum loan payments, etc.)

Is renting better than owning my own house?

One of the reasons renting might be considered better than owning is that renters don’t have to pay property taxes. However, the money you funnel into your rent won’t help you gain the equity of an owned property.

Is it cheaper to buy or rent?

In some areas of the U.S. buying is actually cheaper in the long run since rents typically increase by 5% each year. Homeowners pay a fixed monthly mortgage, renters will eventually pay more every month as their rates increase year over end.

About the Author

Ashlyn Brooks

Ashlyn Brooks

Ashlyn is a personal finance writer with experience in budgeting, saving, loans, mortgages, credit cards, accounting, and financial services to name a few.

Full bio

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