How Much Rent Can You Afford?
While choosing to rent where you live isn’t as significant a financial decision as buying a home, it’s certainly one that impacts your finances and quality of life. Renting is a great option if you’re on your own for the first time, if you have a job that involves frequent travel and relocation, or if you’d simply rather avoid the financial and time commitments buying a house requires. But just as buying too much house can lead to being “house poor,” committing to a lease with rent that’s too high can also leave you financially strapped. Take a look at these tips to help you determine how much rent you can afford.
Determine Your Needs — Beyond having a roof over your head in a safe neighborhood, determine exactly what you need from where you live. Fancy amenities are fun, but all those extras can cause rents to rise. If you’re someone who’s always on the go and does little more than shower, sleep and eat at home, you can get by with smaller, more humble surroundings. Conversely, if you’re a homebody who spends hours nesting and watching Netflix, you might want a little more breathing room.
Add Up Your Income — Before you decide how much you can afford to pay in rent, you have to know exactly how much money you have coming in. Add up your salary, anticipated bonuses, support payments, and any additional income from freelance work or side gigs. If your income is entirely commission-based, use last year’s total (even if you expect to make more) as a guide.
Follow the 30% Rule — Most experts agree that rent should account for no more than 30% of your total income. Now, that’s not to say it needs to be exactly 30%, it just shouldn’t be more. Try to find rent that rings in at less than that if possible.
Find Out About Fees — Before you sign on the dotted line, be sure you find out if there are fees you’ll be responsible for in addition to rent. These can include (but aren’t limited to) utilities, water and sewer fees, trash pickup, parking, or community upkeep fees.
Use Amenities to Cut Costs — If you choose to rent in a community that has special amenities, such as a gym or pool, use them to your advantage to cut costs. Using on-site workout facilities means you can quit paying to go to the gym. Taking part in movie nights or other social gatherings will reduce your entertainment costs. Participating in community potlucks or happy hours can help you save on food.
Keep an Eye on Your Goals — Renting offers a sense of freedom you don’t get when you’re paying down a mortgage. But that doesn’t mean you shouldn’t keep your long-term financial goals in mind while you rent. If your ultimate goal is saving for a down payment on a home, be sure you’re putting money away for that, as well as saving for emergencies and retirement (it will be here sooner than you think!).