For many renters, navigating how much money to spend on rent, daily costs, and savings can get confusing. But as long as you set a budget for how much you should spend on rent and avoid living above your means, you and your bank account will come out on top. Let’s examine the possibilities and different tactics for creating a rental budget so you never overspend on rent again.
How Much Can You Afford in Rent?
This is the most important question when it comes to renting an apartment. Cost is everything to many renters, especially if you’re on a strict budget. It’ll likely be what deters you from one apartment and lures you to another. One of the biggest factors to help you determine how much you can spend on rent is to examine your lifestyle. If you enjoy staying home, you may want to invest a little more into your apartment budget. However, if you just need a place to shower and sleep, you may want to keep your budget small to save money for other aspects of life.
Most tools use your monthly net income to calculate your rent budget, so you’ll need a way to determine your budget based on that. There are numerous rules of thumb to consider. To help simplify to process, consider the 30 percent threshold along with the 50/30/20 budget.
What is the 30 percent threshold?
The 30 percent threshold details that you should spend approximately 30 percent of your net income on rent. For example, if your yearly net income is $40,000 a year, multiply that by 30 percent (.3) to get how much you can spend on rent per year. Divide that number (12,000) by 12 to get your ideal monthly rent payment. If you do this calculation correctly, you’ll come to your preferred budget of $1,000 a month to spend on rent.
- Yearly Income X .3 = Yearly Rent Amount
- Yearly Rent Amount ÷ 12 = Monthly Rent Amount
Once you have your monthly rent budgeted calculated, think about how you’ll use your apartment. If you want your home to feel as homey and convenient as possible, including upgraded features, community amenities, and safety precautions, then you may want to spend 30 percent of your income on rent. However, if you’re always on the go, then you may want to try and spend no more than 20-25 percent of your income on rent. It all just depends on your lifestyle, the average rent prices of the area, and your other expenses.
Other Expenses
For some people, the one-third rule works perfectly. But if you have a lot of other expenses, like student loans, car payments or childcare, you may need to set your sights on a slightly cheaper place. Also find out how much cable, Internet, and utilities like gas and electricity are going to cost you by asking the current tenants or landlord for an estimate.
Roommates’ income
While your roommates don’t need to know your annual salary and you don’t need to know theirs, they may have different ideas of how much they can afford. If your roommate eyes a place that falls out of your price range, ask if they would be willing to pay a little more to have the bigger bedroom, for example. If you’re worried about your roommate wanting more amenities and features than you can afford, suggest making a budget together so you can be realistic on your search.
Quality of life
Some people are perfectly content sharing bedrooms, not having a dishwasher, or parking on the street, while others want a building with a doorman and on-site gym. Make a list of your must-haves and wants and have your roommate(s) do the same, then share the results. Hopefully you’ll be able to find compromises that work for everyone.
Emergency funds
Hopefully you won’t have to use them, but you should take stock of how much money you have stowed away in case you lose your job, wreck your car, or end up with big medical bills. Having your bank account go to zero every month is never advisable, and your living expenses are a big part of that equation. Leave some wiggle room in your spending and put the extra in savings every month so you won’t fall short on rent in case the unforeseen happens.
What is the 50/30/20 budget?
If you’re wondering how rent fits in with the rest of your budget, the 50/30/20 budget is a great and simple way to help.
The breakdown starts like this: 50 percent of your income goes towards the essentials. This includes rent, additional fees, utilities, phone bill, insurance (renters, car, health), transportation (gas, public transit, car payment), and groceries. The next 30 percent of your income is put aside for entertainment and non-essentials, such as movies, concerts, retail shopping, and dining out. The remaining 20 percent (or more if you’re a saver rather than a spender) of your income should be put towards your retirement and savings account.
The 50/30/20 budget is an easy way to establish a budget and make sure you’re still saving money. Now that you’ve seen what 50 percent of your income goes toward, let’s discuss what some of those essentials include, you’ll need to add these into your move-in costs and monthly rent.
What and How Much Are Move-In Fees?
Moving to a new apartment isn’t only about rent and utility costs, you’ll need to calculate move-in fees into your apartment budget as well.
Move-in fees are one-time payments that you will pay before or on move-in day. They are typically not added to your monthly rent. However, you will still need to budget for these costs to be sure you have enough money saved up for all moving expenses.
Move-in fees include:
- Application Fee
- Administration Fee
- Security Deposit
- First Month’s Rent
- Pet Fee/Deposit
Application fee, administration fee, and security deposit
The application fee and administration fee depend on the apartment complex, but they can range anywhere from $50 to $400. How much you have to pay in a security deposit also depends on the apartment, along with what comes back on your background and credit check. A security deposit can be as much as one month’s rent. If you have good rental history, meet the other qualifications, and have a high credit score, your security deposit could be much lower. In most cases, a security deposit is refundable, as long as it doesn’t have to be used to fix the damages you make to the apartment.
First month’s rent
Depending on apartment management, you may have to pay a prorated rent – this amount accounts for the partial month that you will be living in the apartment. However, some complexes will charge you a full month’s rent or first month’s rent and last month’s rent. Ask the landlord or property manager about the specifics to be sure you’re both on the same page.
Pet fee or deposit
If you plan to have pet(s) in the apartment, then you will likely have to pay a pet fee or deposit. A pet deposit works like a security deposit because you can get all or some of your money back if your pet causes little to no damage. A pet fee is non-refundable charge that you pay with your other move-in fees. In addition to a pet fee or deposit, the apartment may also charge monthly pet rent, so you’ll need to calculate that additional rent into your budget as well.
How Much Are Utilities Every Month?
While they may not be added into your rent price, you need to factor utilities into your rent budget. Utilities are monthly payments that include:
- Gas
- Electricity
- Water
- Sewer
- Trash (valet or basic)
- Internet and Cable
- Pest Control
How much your utilities are and how you pay them depends on if they are included in your rent or if you are charged separately by the provider, either at a flat rate or based on usage. It could actually be a mix of both. For instance, your apartment complex could include a flat rate for water, trash, sewage, and pest control that’s automatically added to your monthly rent. But you can’t forget about your gas, electricity, and internet/cable providers.
It’s vital to ask the property manager or landlord how they handle and split up utilities before you sign the lease. If you don’t have a ballpark number for how much you’ll be paying each month for utilities, then you could end up paying more than you anticipated.
How To Set Your Budget for Rent
The first step to this process should be determining your lifestyle, meaning how much time you plan to spend at home and in the apartment community. That’ll help you decide what kinds of amenities and features you’re willing to pay for, and then you can determine what percentage of your income works best for you. But remember, you shouldn’t be spending more than 30 percent of your income on rent.
How to calculate your overall rent
Calculate the percentage you’re thinking of spending on rent with your income. That number should include your base rent plus utilities (gas, water, etc.). Don’t forget about the potential charge for monthly pet rent, renter’s insurance, extra storage fees, garage, or covered parking fees.
Sticking to Your Final Budget
Once you apply the 30 percent threshold and the 50/30/20 rule to your own income and personal situation, you should have your final budget down for your move-in fees, monthly rent, utility costs, and additional fees. After you’ve paid your move-in fees and are living in the unit, your final budget should be set in stone for the term of your lease. However, be prepared that you may come upon an additional fee or a rent increase on your lease renewal when your lease is up.
Frequently Asked Questions About Rent Affordability
Do apartment communities count my roommate’s income too?
If you’re signing a joint lease, all incomes are added together to determine if you meet the income requirements. For example, if your potential landlord’s income requirement is four times the monthly rent, you and your roommate(s) income will be added together to determine if you meet the criteria.
How else can I figure out how much rent I can afford?
You can use our Rent Affordability Calculator to get a suggested amount to budget for rent. While the standard rent allowance is usually 30-40 percent of your monthly income, there are other ways to determine rent. First, the area you’re renting in will affect this number. People living in areas with a more competitive rental market, like New York City and Los Angeles, will more than likely need to spend more than 30 percent of their income on rent, while people in smaller cities may be able to spend less than 30 percent on rent. You should also factor in all sources of income, like investments, pension, or social security. What you can afford on rent all boils down to what you feel comfortable with spending and your financial situation.
