How Much Should I Spend on Rent?
Traditional advice tells us we should spend no more than 30% of our gross income (that’s before taxes) on rent. But traditional advice hasn’t kept up with the times.
In 2020, 30% of households were paying more than 30% of their income for housing. Then, in early 2022, year-over-year rent increased by a massive 12.4% across the U.S.
In reality, no single rule of thumb can tell you how much you can or should pay for rent, especially when prices are skyrocketing everywhere. Each of the rent guidelines below has its benefits and shortcomings but understanding them can help you decide if a rent payment fits in your budget.
Factors to Consider When Calculating Rent Affordability
Financial experts and landlords might suggest certain calculations, but you’re the only one who can really calculate what’s affordable. You’ll have to consider your whole financial picture, beyond just income, to find out what you can afford to pay for rent.
Keep in mind that most rental units require a deposit, and you may have to pay first and last month’s rent up-front, plus any moving fees and costs to furnish the unit.
You’ll also have to cover new monthly expenses when you become a renter or move to a new rental home. Before signing a lease, make sure all of these items fit in your budget:
- Rent payment
- Utilities, including internet
- Transportation to/from the home
- Parking, if applicable
Not sure if you can afford these costs? A great way to prepare for increased expenses is to try setting aside the money for three months before making a move. That gives you a chance to see if it’s doable and make adjustments in advance.
How to Calculate How Much Rent You Can Afford
No calculation method is perfect, but these rules can help you prepare for the cost of renting and adjust your budget:
30% Income Rule
The 30% rule says that your rent should be no more than 30% of your gross monthly income. According to the rule, you can multiply your gross monthly income by 0.30 to determine the maximum rent you can afford.
For example, if your gross income is $5,000 a month, your rent should be a maximum of $1,500 (5,000 x 0.30 = 1,500).
This rule is based on a federal guideline that was created back in 1981 , which hasn’t been updated since. It was not meant to help individuals decide what rent they can afford, but unfortunately, it’s .
Here are some reasons that experts say the 30% rule is not :
- It’s based on gross income and doesn’t consider taxes and other withholdings that might affect your budget, like child support or 401(k) loan payments.
- It doesn’t take any necessary spending into account, which is different for each household.
- It doesn’t account for location, which can impact the quality of housing or make it more/less expensive to commute.
40x Rent Rule
When you’re shopping for an apartment, the landlord might apply the 40x rule. This rule says that your rent is not affordable unless your household’s total annual income is at least 40 times higher than rent.
To find your maximum rent using this rule, divide your household’s annual gross by 40. For example, a household that earns $80,000 per year can afford a maximum monthly rent of $2,000 (80,000 ÷ 40 = 2,000).
The 40x rule has a few flaws. Like other methods, it doesn’t consider monthly expenses like debt payments or medical costs. For people with roommates, the rule also fails to ensure that every household member can afford their individual contribution.
The 50/30/20 rule can be a helpful guideline for spending money and creating financial stability.
According to the rule, you should spend 50% of your take-home pay on necessities (including rent), 30% on non-necessities and 20% on savings or financial goals. Here’s a further breakdown:
- 50% (Needs): This includes necessities like housing, utilities, and food, and may also include transportation and medical expenses.
- 30% (Wants): For this category, you can decide which non-necessities to spend money on. It might include things like dining out, shopping, gifts, entertainment, or travel.
- 20% (Savings): This portion should automatically go toward financial goals, including emergency savings, retirement or even paying off debt early.
According to the 50/30/20 rule, if you take home $4,000 per month, you’ll have a $2,000 budget for necessities, $1,200 for wants and $800 for savings.
The 50/30/20 rule might not work for everyone, but it can be a helpful reminder to prioritize financial goals while also giving yourself freedom to do things you enjoy.
Budget to Free Up Money for Rent
Most people hate the idea of creating a budget, but it’s the best tool to determine how much rent you can afford.
Keep in mind that it doesn’t have to be complicated. If you can make a list, you can create a budget! Just write down each of your monthly expenses and compare the total to your income.
If a rent payment fits into your budget, along with utilities and other related expenses (and you have some cash left for emergencies) you can likely afford the rent. If not, try these options:
What To Do If You Can’t Afford Rent
If you can’t afford your rent, try to determine how much extra money you need to come up with each month. One or more of the following options might help you cover the difference:
- Apply for rental assistance through a government program or nonprofit.
- Find a roommate to save money on rent.
- Consider downsizing, finding a private renter who charges less or renting an in-law unit.
- Offer your labor in exchange for free or reduced rent.
- Ask your utility companies about income-based discounts.
- Look into additional financial help for low-income Americans.
Get Professional Help with Budgeting
If the idea of creating a budget makes you itch, try getting help from a certified credit counselor at a nonprofit credit counseling agency like InCharge Debt Solutions.
Not only can an InCharge credit counselor assist you in creating a budget, but they can also help you determine what rent is affordable, help you with strategies for saving money on rent, and offer tools for managing and prioritizing debt.
About The Author
Sarah Brady is a Personal Finance Writer and educator who's been helping people improve their financial wellness since 2013. Sarah writes for Experian, Investopedia and more, and she's been syndicated by Yahoo! News and MSN. She is a workshop facilitator and former consultant for the City of San Francisco's Affordable Home Buyer Programs, as well as a former Certified Housing & Credit Counselor (HUD, NFCC). Sarah can be contacted via sarahcbrady.com.
- N.A. (ND) Rental Burdens: Rethinking Affordability Measures. Retrieved from https://www.huduser.gov/portal/pdredge/pdr_edge_featd_article_092214.html
- Herbert, C. Hermann, A. McCue D. (2018, September) Measuring Housing Affordability: Assessing the 30 Percent of Income Standard. Retrieved from https://www.jchs.harvard.edu/sites/default/files/Harvard_JCHS_Herbert_Hermann_McCue_measuring_housing_affordability.pdf
- Weise. K. (2014, July 17) Housing's 30-Percent-of-Income Rule Is Nearly Useless. Retrieved from https://www.bloomberg.com/news/articles/2014-07-17/housings-30-percent-of-income-rule-is-near-useless
- N.A. (2018, April 19) American Families Face a Growing Rent Burden. Retrieved from https://www.jchs.harvard.edu/sites/default/files/interactive-item/files/Harvard_JCHS_State_Nations_Housing_2022_Key_Facts.pdf
- N.A. (2022) The State of the Nation's Housing 2022. Retrieved from https://www.jchs.harvard.edu/sites/default/files/interactive-item/files/Harvard_JCHS_State_Nations_Housing_2022_Key_Facts.pdf