We live in an area we can’t afford. At one point, prior to having only one income, my boyfriend and I were spending roughly a third of our income on rent. This figure is the exact maximum number the U.S. HUD recommends you limit your housing expense to.
If you are like us, and have been living in apartments your whole life, then you are probably familiar with this number: 2.5 times your monthly take-home. This is what most landlords ask your minimum income to meet: 2.5 times the monthly rent being asked.
According to landlords, you should be making at least $2,500/mo. to afford a $1,000 apartment. Does this mean this is the magic number you should base all of your calculations on? No.
There is a certain degree of risk all landlords are willing to take when searching for a reliable tenant. However, with tough economic times that risk has gone up. To get a good idea of how much you should spend on rent, consider the whole picture.
Will your rent expense leave room for savings? Are you looking at an apartment that barely allows for any sort of savings? Chances are, you can’t afford it. If working just to pay for your rent is a current reality for you, then you are leaving beyond your means.
Consider the Total Cost
Location is a huge factor that affects rent values in a neighborhood. When trying to determine how much to pay for rent, consider the location and all that comes with it. Convenience in transportation, proximity to schools, jobs, shopping, places with high crime rates, everything matters.
Just because that apartment you are eyeing is $200 more than you can comfortably afford prior to considering all of the above, doesn’t mean it’s not a good deal. Let the market conditions guide you to determining your price ceiling for rent. Are you gaining a new convenience of not having to drive to your job? If you are saving $100 on monthly work commute costs and $20 on traveling to grocery stores, who’s to say that $120 can’t go towards your rent instead? I’m not saying you should spend the money you save elsewhere, but consider your entire position by taking a look at your budget to determine where that money can be put to use.
Don’t Listen to Experts, Look at Your Budget
Most experts say you should be living on 25% or less of your monthly take home income, but a recent survey showed that people spend on average 30% or more on rent. Instead of listening to experts or judging how much to spend based on what others are paying, wouldn’t you rather consult the most accurate oracle there is? Your budget is the first place you should look to see what you can and can’t afford. Don’t have one? Consider making a simple spreadsheet that tracks your income and your expenses. Once you break down all of your costs, it should be very easy to see whether your financial goals are being met and whether you need to reduce your rent payments.
For budget suggestions check out the 60% solution and the 50/30/20 fix I wrote about earlier.
Are you spending more than 25% on your rent or mortgage payment? How much more?