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Getting a place of your own, even if you’re just renting, is an exciting step. But to avoid quickly becoming disappointed in your new living arrangement, or even worse, ending up broke and having to move back to your parents’ house, be responsible and first figure out the answer to “How much should I spend on rent?”
50-30-20 rule for budgeting
This simple rule set the limits for your spending: 50% of your take-home pay should be spent on necessities, including mortgage or rent, car payments or public transportation costs, grocery shopping and utilities. These are the things you absolutely need to survive. The next 30% of your income can be spent on clothes, travelling, eating out, entertainment and other things that make life so pleasant. The last 20% of your income has to go to fulfilling your goals and dreams. For most people it’s a good idea to use this money to pay off debt or save for house downpayment, retirement, kids’ education, etc.
Spend 30% income on rent
The short answer to “How much rent should I pay?” is that you should spend 30% or less of your gross monthly pay on rent and associated costs, such as renters’ insurance. Some experts say that you can subtract the cost of utilities, loans and insurance from your monthly income and pay spend up to 40% of the remaining sum on rent. You may be tempted to get a place of your dreams and go over these guidelines, but most of the time you won’t get approved for an apartment unless you meet certain income restrictions, for instance, most apartment complexes won’t allow you to rent unless you make 3 times the rent per month before taxes. By the way, it is a good idea to ask about these requirements before even touring the building to save your time and efforts. These requirements can become a problem if you live in areas with high apartment rent prices, such as New York. In this case, consider getting roommates or moving a little further from downtown.
Never spend savings on rent or expect to start making more money
The income you spend on housing you should never include your savings, such as college and retirement funds, and you should never take out loans or pay for housing costs with credit cards. While it may be difficult to resist living in the apartment of your dreams, financial choices like this can lead to serious consequences down the road.
The same logic goes to thinking that you may get a promotion or a better job soon and then you will be able to spend more on rent. Life is unpredictable and you should never spend the money you don’t have yet.
Be aware of the cost of moving
Your new apartment will require insurance, furniture, household appliances and more, so don’t spend every last penny on your first and last month’s rent.