Knowing what you want in a rental home is pretty easy: space, location, storage, comfort, etc. Finding all of those things within your budget can become a bit difficult. But before you even start contemplating your rental possibilities, you should probably know what your budget is.
There are multiple ways to figure out how much you can afford to spend on rent. According to apartmenttherapy.com, there are three main steps to consider.
1. The Mathematical Approach.
Rent should be somewhere around 30% of your income (take home pay). Some people can stretch that figure a bit more, but for most people, 30% is a range that will allow you meet all your living and entertainment expenses, and will still allow you to save for retirement and emergencies.
To figure out how much 30% would be, take your combined annual income and divide it by 40. (This is just a shortcut for taking 30% of your income and then dividing it across 12 months.)
For instance, let’s say you make $72,000 per year.
$72,000 ÷ 40 = $1,800 per month -or-
30% of $72,000 = $21,600; $21,600 ÷ 12 = $1,800
Remember, this figure needs to cover all housing costs including rent, utilities, insurance and other home-related expenses.
2. Personal Comfort.
Just because you can pay a certain amount doesn’t mean that you should. Perhaps your budget focuses much more heavily on entertainment, travel, or restaurant costs. This means that you might want to spend less on your rent than the numbers suggest.
Consider that living in some places like San Francisco or New York City often involves paying higher rent, but you may save money on transportation costs or other general living expenses. Work these situations into your numbers as well.
If you have kids, remember to work the costs of their expenses into your budget. If you’re paying for private school, daycare or year round sports, this will probably change how much you can devote to rental costs.
Ultimately, you should use the mathematical guideline above to get a rough idea, but you should use your personal comfort to develop realistic budgetary goals. Try to discern how much you’re willing to sacrifice in order to rent at a higher price.
3. Think through the Specifics.
As you start searching for places, consider what additional expenses will go into housing, and take these into account when you calculate. Paying utilities can add a fairly large amount to your monthly payment, even if the nominal fee you pay in rent is affordable. If you’ll be living with roommates, also consider what expectations they’ll be bringing to the table, both in terms of living and in terms of finances.
If it is your first time living on your own, you may also want to choose a place with a slightly lower rent at first so you can devote some money to furnishings. You may also need to buy smaller items such as a broom, a toilet brush, or a waste basket, all of which add up. If you don’t factor all of these costs into your rent, you might find yourself in over your head, and unable to afford rent, and your previous lifestyle.