To rent in the city or not to rent in the city; that is the question.
To live with roommates, or not to live with roommates; that is the question.
To have a great commute, or not to have a great commute; that is the question.
OK so finding a place to live prompts a lot of questions. We are here to answer your biggest questions about money, rent, and what you can afford as you hunt for your next place to call home.
What percentage of my income should go to rent?
Generally speaking, 25-35% of your take-home income should go to rent.
This allows you to divide the rest of your income between saving for the future (retirement, big purchases like a house, etc.), other fixed expenses (insurance payments, utilities, etc.), and flexible spending (clothes, wining and dining yourself, etc.).
How much can my rent be if I make $75k?
Let’s dive into a real-life example. If you make $75k a year, that means your take-home pay will be closer to $58,500* (because yes, you really do have to pay taxes). You take-home $4,875 a month.
Your rent should be between $1,218 and $1,706 (25-35% of $4,875).
We recommend saving $975 (20% of $4,875) each month for the future. This leaves you with between $2,194 and $2,683 left to spend on your remaining fixed expenses and flexible expenses.
How do I figure out how much I can spend on rent?
Figure out what 25-35% of your take-home income is. If you start looking for rentals and find there’s no way you’re going to get what you want with that amount, you can spend more.
You might even be wondering, can I spend 50% of my income on rent?
You can. Sometimes there’s good reason to spend more of your income on rent. For example, if you love living in a big city, don’t want to have roommates, or care a lot about the ease of your commute each day, you can spend more on rent.
We have clients that spend 50% of their take-home income on rent and still have their financial sh*t together. The key to spending more on rent guilt-free is making sure you’re still saving for the future and you’re comfortable with the rest of your spending money feeling tight.
Back to the example of making $75k a year…
If you spend 50% of your income on rent, it means you’ll only have $1,462 a month to spend on your other fixed expenses and flexible spending.
If you increase the amount you spend on rent, you need to make sure you’re saving for the future, still be able to afford your other fixed expenses, and you’ll spend less on the fun stuff (like travel or eating out).
Do I need roommates or can I live alone?
Having roommates can be a great way to save money on rent, but if you’re determined to keep your abode to yourself, that can work too.
If you really want to live alone, take 3 simple steps to see if you can afford it…
- Research rentals in your area and get a rough estimate of what it will cost to live alone.
- Divide the estimate by your take-home monthly pay. The result is a rent-to-income ratio.
- If the rent-to-income ratio is within 25-35% of your take-home pay, you’re in good shape. Go for it if it’s a priority to you.
If the rent-to-income ratio is higher than 35%, you need to make sure living alone is a big priority for you and that you’re comfortable with keeping the rest of your spending tighter. You might be tempted to use some of the 20% you’re saving for the future to cover spending, but don’t. If living alone will cost you an extra $500 a month and you’d rather spend it on rent than eating out, travel, or a gym membership (as examples), do so, and do it guilt-free.
The key to spending more on rent guilt-free is making sure you’re still saving for the future and you’re comfortable with the rest of your spending money feeling tight.
How much you spend on rent is really up to you and your priorities. Just make sure you’re saving for the future and not going into debt to pay for your lifestyle.
For more advice and suggestions to get your financial sh*t together, check out our online crash course, MoneyMASTERED™.
*Our take-home income calculation assumes a tax rate of 22% for the sole purpose of providing an example.