In a NutshellHow much monthly rent you can afford boils down to your budget and expenses.
Every apartment search should begin with asking yourself the question, “How much rent can I afford?
It’s probably safe to say no one wants to blow the majority of their monthly income on rent. Keeping this expense as low as possible can give you more wiggle room so that you can prioritize and save for future goals, like buying a house and saving for retirement.
Figuring out how much you can afford in rent begins with understanding your budget.
- What percentage of your income should go to rent?
- Rent trends in the U.S.
- 5 steps to determine how much rent you can afford
What percentage of your income should go to rent?
The general rule of thumb is that you should spend no more than 30% of your gross income — that is, your income before taxes — on housing per year.
Here’s what that might look like.
|Annual gross income||Maximum monthly rent|
Rent trends in the U.S.
Now that you have a better idea of how much you should be spending on rent based on your gross income and the 30% rule, it can help to understand rent trends across the country.
Median rental list prices stood at $1,477 in April 2019 — up 2.6% from that time last year, according to the Zillow Rent Index. In fact, Zillow’s data shows that rent prices in the U.S. have generally been on the rise since 2012 for studio, one-bedroom and two-bedroom apartments.
5 steps to determine how much rent you can afford
To gain a better understanding of your money, start by looking at the past three months of your spending and saving habits. Doing so should let you see where you’re overspending. Then follow these five steps to help figure out how much rent you can afford.
1. Calculate your total income
Add up all of your income from your job, side jobs and any assistance you may receive (like alimony, child support, government subsidies).
2. Add up your expenses (not including rent/housing)
This includes food, transportation, toiletries, entertainment, family trips, medicine, child care and other expenses. Put these expenses into categories, like “need-to-have” and “nice-to-have,” so that you know how much you’re spending where.
This is a good opportunity to assess your spending and start spending more mindfully so that you can work toward your financial goals, like saving for a house or your retirement.
3. Figure out how much you should save
Add up your monthly savings for an emergency fund, retirement and other savings goals, like a 529 plan. If you’re not already saving, aim to put away at least 10% of your monthly income.
4. Calculate hidden costs and one-time costs involved with moving
In addition to thinking about how much you have to spend regularly on rent, you should also factor in some of the hidden or one-time costs of moving. This might include an apartment broker, movers, application fees and credit checks, security deposits and furniture.
Factor these into your move — even if they’re just estimates, it’s a good idea to write them down and include them in your budget.
5. Calculate your max budget for rent
Once you know how much money you make and how much your fixed expenses are — including how much you want to save — you can figure out what your max budget for rent is.
Keep in mind that the 30% rule can vary according to your financial circumstances. That’s why it’s important to come up with a list of your expenses and understand how they fit into your budget. You also have to consider how expensive your area is. You might end up having to spend more than 30%, but even if you do, you’ll be prepared to adjust other parts of your budget.
Since rent is such a big portion of your monthly expenses, it’s crucial to see how it affects your ability to cover the other expenses you have, while saving for your financial goals.
It boils down to your lifestyle and what you prioritize. Would you rather pay top dollar for a posh downtown apartment but struggle to save or go on trips? Or would you rather live somewhere less glamorous so that you can save more aggressively for your emergency fund or a down payment on a house? If you’re having trouble breaking it down, check out this budget worksheet offered by the Consumer Financial Protection Bureau.
Determine the lifestyle you want to lead, calculate your budget and set your savings goals to get an accurate picture of how much rent you can afford each month.
Rent vs. buy calculator
Find out if it makes more financial sense for you to buy a home or rent one with our rent vs. buy calculator.