How Much Should You Spend on Rent When Budgeting?

It's never too late to get a firm grip on your finances. If you think you're paying too much for rent, moving to more affordable accommodations can make a significant difference in your budget. Do some calculations before you commit to a new lease so you know what you can reasonably afford.

Percentage of Income

According to CBS MoneyWatch, some landlords require that you spend no more than a quarter of your pre-tax income on rent -- rent being the operative word. Forget utilities and other associated expenses for the moment. "Rent generally should not be more than 25 percent of your gross monthly salary," says Andy Solari, Realtor Associate at Re/Max Carrier Realtors in Brigantine, New Jersey. "If an individual's income is $4,000 a month, then the rent should be no higher than $1,000."

Additional Housing Expenses

You're not going to want to live in the dark or shiver through the winters, and nobody wants to give up television, telephone and Internet service, so 25 percent is typically just the beginning of what you'll spend on housing. Fox Business suggests that when you add in things such as utilities, the total should come out to no more than 33 percent of your earnings. Some estimates for these additional housing costs are more conservative. CBS MoneyWatch recommends not exceeding 3 to 4 percent of your gross income for utilities. Most people spend between 30 and 35 percent overall on rent and utilities. Don't forget renter's insurance if you own any personal property that would be difficult to replace on a budget.

Other Equations

Budgets lend themselves to tweaking and adjustments so you can get where you need -- or want -- to be. If 30 to 35 percent of your income won't provide for suitable accommodations, you can try moving money from one category to another. The 25-percent figure for rent is predicated on the assumption that you're going to spend another big chunk of money on things such as car payments and groceries. If your car is paid for so you don't have an auto loan, you might be able to spend more on rent. Fox Business says that when added all together, housing, food and transportation should take up no more than 55 to 60 percent of your budget. If you can cram down groceries and transportation to 20 percent, you could possibly increase the money that's available for rent to 40 percent.

People living in cities where rents are steep might dedicate as much as 50 percent to rent payments, but they must typically give up something else in order to do so. The 50/30/20 budget suggests that you should give 50 percent of your income to necessities, 30 percent to discretionary spending -- the fun things -- and 20 percent to savings or paying down debts. In theory, this, too, can increase what you can comfortably spend on rent if you move some of that discretionary 30 percent over to the necessities column.

Explore Your Options

The more wage-earners you put in a rental, the nicer and more spacious that rental is bound to be. "If two people are on the lease and they gross a combined income of $8,000 a month, their rent can go as high as $2,000," says Solari. Rent on a three- or four-bedroom dwelling sometimes comes out to less per person than a single individual would have to pay for a one-bedroom place. If sharing your living space seems uncomfortable, consider some other creative options. You might offer to perform maintenance or managerial services for your landlord in exchange for a break on the rent. If you don't find the process of moving all that appalling, consider subletting a place -- renting from an existing tenant who is no longer living there for one reason or another. You'll need approval from the landlord and you may have to pack up and leave when and if the original tenant wants to come home, but these situations are often more affordable than signing your own lease. If nothing else, it might buy you time to get your financial ducks in a row so you can afford a little more toward your own place somewhere down the line.

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