5 Ways to Decide How Much Rent You Can Pay

August 30, 2017
If you do not own a home, the cost of rent will probably be your biggest monthly expense. For this reason, it is very important to decide how much rent you can afford month after month. This will help you find the right place to live for your budget.
5 Ways to Decide How Much Rent You Can Pay

Here are five things to consider when deciding how much rent you can afford.

How much time will I spend in my apartment?

If your apartment is simply a place where you sleep, then size and amenities might not matter too much to you. You will simply need a quiet place. If you fit into this category, perhaps you would only need to spend 20% to 25% of your monthly income on rent. If you want to spend more time in your apartment (if you cook there every night and often invite friends over), then you can bump the monthly percentage up.

What is the maximum amount I can pay?

Experts suggest that no one spend more than one-third of their income on rent each month. That is approximately 33% of your take-home pay. You could round that up to 35%. This means that even people who want an apartment that they can spend a lot of time in should not spend more than 35% of their income on rent.

What are my other debts?

The 35% rule will leave most people with enough money to cover their other expenses and remain healthy financially. However, other outstanding debts can affect the amount of rent that you can afford. Credit card, car or student loan payments can add to the strain on your bank account. The general rule is that about 50% of your income can be spent on “fixed costs.” That includes car loans, rent and any debt payments. At the very minimum, you should leave one-third of your income (33%) for day-to-day expenses.

How can I cover unforeseen expenses?

If you are ill and cannot work, you are changing jobs or you have to cover emergency expenses, how will you pay your rent? You can do two things. First, you should save money for such an emergency. If you put away 5% of your income each month, you will be able to cover nearly two months of rent each year. This will give you a little bit of a buffer should you lose your job. The other option is to plan to get an online personal loan. These loans are quickly approved and they can help cover the cost of rent for a month or two until you are able to get your financial footing once again.

Do not forget utilities

The amount of rent should include utilities like gas, water, and electricity. The amount should also include any additional fees. Before agreeing to the terms of a lease, you should ask what is and is not included in the rent. If utilities are extra, you can 1) make certain that the total cost (rent plus utilities) will be under 35% of your income or 2) make certain that the cost of utilities, rent and all your other fixed payments are under 50% of your take-home pay.