There’s a lot to take in when you’re evaluating whether or not to rent an apartment: the location, the amenities of the community, square footage, and perhaps most importantly, budget. Determining how much rent you can afford on a monthly basis largely depends on your income and monthly expenses. Figuring out the magic number as far as rent is concerned is half math problem, half common sense. Here’s a few tips to make it a bit easier to digest:
How Much Of Your Income Should Be Reserved For Rent?
The general rule of thumb is that 30% of your income every month should go to rent. For example, if you earn $5,000 a month, you should be able to spend $1,500 on rent and live a comfortable life. You can also calculate this by taking your annual earnings/salary and dividing it by 40.
This is conventional wisdom that fits a general situation, but it doesn’t account for debt. $1,500 a month can be hard to swing if you have to pay $1,000 a month for credit card debt or student loans. Enter in the debt-to-income ratio. Otherwise known as the 43% rule, it accounts for your rent plus any monthly debt responsibilities that you’re paying off- these should not account for more than 43% of your monthly income.
This presents a problem when we look at the bigger picture in the US, however: lots of renters spend at least 30% of their monthly income on rent. Many spend significantly more. Caused by a number of reasons including inflated rental costs in major cities, which is a product of low inventory, high demand and a consumer culture. Shirking the rules may still be a financial decision worth taking, but that decision is ultimately up to you. In general, it’s not a good idea to take on a rent payment that spreads you super thin every month. Additionally, don’t just think about your debt-to-income ratio- also consider the amount you spend on essentials (and non-essentials too!) Food, entertainment and clothing are all part of a well-balanced life.
Other Costs to Consider
As far as housing costs go, rent is the big one that you have to account for. However, this isn’t the only thing you need to think about when you’re moving or thinking about moving. Make sure you don’t forget about the following:
Security deposit. A security deposit is the fee that is collected by your landlord to cover incidental damages that take place while you reside in your apartment. Landlords hold this money for you through your lease period and if your apartment is left in the condition you received it in, you’ll get it back. In some cases, your security deposit’s return will be withheld. This is usually due to damage in the unit or extensive cleaning requirements before the unit is inhabitable for the next tenant.
Move-in fees. On occasion, landlords will charge a move-in fee that they require to be paid prior to occupancy. This may be in lieu of a security deposit, but it can also be in addition to. Unlike a security deposit, it’s not refundable at the end of your tenancy.
First and/or last month’s rent. This is often the biggest hurdle in the market for renters, but it’s not always avoidable. These fees are generally all due at the same time as your deposit and can present a problem if you haven’t been saving for them.
Utility costs. Your cost of living in an apartment goes beyond rent. The exact utilities you’re responsible for depends on what you agree to when you sign your lease, but you may be expected to pay monthly costs for things like water, gas, heat, electricity, internet and garbage.
The Rent Is Too Darn High!
As you’re evaluating everything and doing your due diligence, it may start looking like you’ll never be able to swing it and afford rent. You’re not alone! Take a step back, a deep breath and follow these steps:
Expand Your Search Area. Obviously, everyone wants a short commute to work and easy access to the places they frequent- but it’s not always an option to work this into your housing budget. If you can’t afford rent in the ideal area, expand your search to neighboring regions and see if you can find a more reasonable rent price there. You may have to adjust your transportation costs, but if you’re on top of your finances you can make it work.
Get a Roommate. Often, the costs for a 2 bedroom apartment are not much higher than a one bedroom apartment. If you find yourself struggling to make the numbers work, remember that getting a 2 bedroom apartment allows you to split the costs between you and somebody else instead of being responsible for the entire burden yourself.
What you can afford to spend on rent all depends on your individual financial situation as well as the cost of living in your area. If possible, give yourself plenty of time to research the available apartments in your area to find the best financial fit.