If you’re struggling to make ends meet each month, looking at your recurring expenses is one of the best ways to save big. And what’s the most expensive recurring cost for millions of people around the world? Their monthly rent payment.
Knowing exactly how much to spend on rent can be tricky. Follow this guide to calculate how much you should be spending on rent, and get ideas to save on housing in the coming months and years.
How much should I spend on rent?
If you were wondering, “How much can I afford to spend on rent?” start by looking at your income. Rent is an important budget line item, and should not be looked at in a vacuum. Consider your overall budget when looking at how much you can afford to spend on rent.
Many personal finance experts offer a vague guideline that you should spend no more than 30 percent of your income on rent. This advice came out of The New Deal in the 1930s, and while it’s still regularly quoted, it’s no longer a useful guideline.
In the decades since the 30 percent rule began, housing and rent prices have skyrocketed, but average income increases have not kept pace. The rule also ignores the additional financial obligations of modern renters. Student loans, renter’s insurance, and retirement accounts weren’t the norm back then.
Lastly, the 30 percent rule doesn’t take into account the variances of housing costs in different areas. People in cities like New York and San Francisco can expect to spend well over 30 percent of their income on rent, while people in rural areas should spend quite a bit less.
Breaking down your income
Rather than choosing an arbitrary percentage, let’s see what you can really afford.
Let’s look at an example to better understand how to budget for your rent. The average 2015 college graduate’s income is a little over $50,000, so we will use that for the example.
If you earn $50,000 per year, your taxes are around $5,725, assuming no extra deductions.
Next, add up your fixed recurring expenses and work deductions, like insurance and retirement account contributions. To make things easy, let’s assume you pay $250 per month for insurance and save 10 percent of your income for retirement. That leaves you with about $36,000 to live on, or $3,000 per month.
Now, we have to take into account other fixed expenses you incur each month. Consider things like groceries, car payments, student loans payments, cell phone, and internet expenses.
These vary widely depending on your living situation (Do you have a roommate? Do you have kids?) and your outstanding debt. Assuming you are single and live alone, let’s use $400 for groceries, $250 for student loans, and $150 for phone and internet each month. After subtracting those expenses, you have $2,200 left.
Next, we have to estimate for utilities and other recurring expenses like a car payment or life insurance. Again, those vary widely by location, the size of your home, and the season. Let’s assume $100 per month for utilities and another $200 for insurance, car payments, and other financial obligations.
Now we are down to $1,900 to cover your rent, fun spending (like restaurants, bars, and entertainment), and additional savings for things like an emergency fund.
If you live somewhere like San Francisco, apartments can easily cost $2,000 per month or more. That would be over 50 percent of your after-tax income! In cheaper cities like Raleigh, the average rent is a little over $1,000 per month. That gives you more flexibility and wiggle room, and only uses up about 30 percent of your take-home pay.
There is no right or wrong answer
Everyone’s finances are different and every living situation is going to be unique. In some cases, spending 30 percent of your income on rent makes a lot of sense, but in others, it is a useless guideline.
Instead of trying to pick a specific percentage, look at your own income, living expenses, and needs. If you’re willing to find a roommate, you can easily slash your monthly living expenses. Living on your own in a big city means you will have less to spend on fun things like shopping, concerts, and tech gadgets.
Ultimately, you should strive to keep your rent payment as low as possible. This will allow you to save more and better prepare for the future.
So now you know how to answer the important question: How much should I spend on rent? The answer depends on how much you can afford, where you live, and how much you want to save for the future.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.50% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.49% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.48% effective April 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.49% – 7.27%1||Undergrad & Graduate|
|2.49% – 6.65%3||Undergrad & Graduate|
|2.49% – 7.41%4||Undergrad & Graduate|
|2.50% – 6.65%2||Undergrad & Graduate|
|2.49% – 7.11%5||Undergrad & Graduate|
|2.98% – 9.72%6||Undergrad & Graduate|