How Much Should You Budget for Rent?
Sometimes finances can seem like magic. Or, at the very least, a mystery.[find-an-apartment]
That’s where budgeting comes in. Creating a monthly budget can help you understand how rental rates fit into your financial life.
Use these tips and resources to get a handle on your budget, understand how rental rates are determined, and figure out just how much you can comfortably afford to spend each month on rent.
The budget worksheet
Think of your budget not as a restrictive punishment that forces you to cut back, but as a document that allows you the freedom to spend what you need to spend and still meet your financial goals.
Your budget plan starts with knowing how much you make. Once you know how much income you have coming in each month, you can look at how much you have going out in expenses. Comparing those two basic figures is how you make a budget.
It’s easiest to record your spending behavior and get everything straight when you use a budget worksheet. There are several online resources you might check out. Bankrate offers an online app where you can identify and input your expenses; Freddie Mac suggests tracking your income for two months using this PDF budget worksheet.
The rent figure
Rental rates are set according to what the market can bear. To set rates, landlords will consider what comparable apartment units rent for in the area. And the price will go up if their units feature bonuses like convenient amenities, a prime location or recent renovations.
But how much should you spend on rent? While it’s common for financial experts to recommend spending no more than 25 to 35 percent of your income on rent, that figure may not be feasible. In some of the largest and most competitive rental markets — New York City, for example — you may have to spend more.
Make it all add up
Here’s the tricky part: ideally, you want to allot enough funds for each of your set expenses, like the rent, while also saving a bit for the future. To determine a rental rate you can afford means that rate has to fit within those guidelines. Your budget plan will help you figure out how all these expenses balance on the spreadsheet of your financial life.
- Need more advice? We're here to help! Check out all our articles on budgeting.
If you can make the numbers work in your city, allocating the ideal 25 to 35 percent of your budget to rental expenses will help you live within your means. The idea is that you’ll have money left over for other expenses, afterward — even some fun ones like vacations and the occasional latte!
Photo credit: Shutterstock / Gunnar Pippel