What Should Be You Budget for Rent?

When you try to live on a budget, it’s important to define how much you need to allocate toward rent payments per month.

08:52 18 October 2022

When you try to live on a budget, it’s important to define how much you need to allocate toward rent payments per month. 

 

There is a general 30% rule for rent which is rather popular. However, you may also need to look for ways to reduce this amount especially if you have loan obligations or credit card debt to tackle. 

 

It would be perfect if your monthly rent payment allowed you to have enough cash left over for food, medical care, transportation, as well as savings and debt payoff. 

 

Keep on reading to learn how this 30% rule works and what alternatives there are.

 

How Much You Should Pay for Rent

There are several options for consumers here. Some people claim that you should pay less than 30% of your monthly income for housing expenses, while others recommend people stick to the golden 30% rule of thumb. 

 

If the mentioned strategies don’t work for you, it may be wise to try a 50/30/20 rule as well.

 

• Below 30%. The world we are living in isn’t stable at all. With all the economic downturns and the recent pandemic, consumers face even more financial struggles than ever. It’s common to take out 500 dollar loans or have multiple credit cards to tackle the necessary expenses. When you have some debt to pay off, you may want to consider paying under 30% of your income for rent. This way, you can allocate more funds for debt repayment. It’s important to lower your existing debt before you can think of other financial needs.

 

• The 30% rule. This is a widespread tactic. Experts advise consumers to spend up to 30% of their income before taxes on housing costs. This is a golden standard that has been around for several decades and we will talk about its history a bit later. This strategy helps have enough money left for other needs and expenses so that you lead a comfortable life.

 

• The 50/30/20 Rule. This is another common strategy for managing your expenses and sticking to a budget. According to this rule, you should spend about half of your monthly income on necessities such as monthly payments, rent, and food. About one-third of your salary goes to non-essential things and purchases, while 20% is left for savings and debt payoff.

 

How Does The 30% Rule for Rent Work?

The recent article Rental Burdens: Rethinking Affordability Measures published at HUDUser.gov reminds us about the 30-percent rule of thumb for measuring rental burden. 

 

This rule has been accepted in society and is often mentioned on various websites and platforms. What does it mean? 

 

This rule means a household shouldn’t spend more than 30 percent of its income on rent and housing expenses. 

 

Yet, the HUD platform states that consumers living along the west and east coasts and in urban areas face the highest cost burdens.

 

Those who bear the housing expenses of more than 30 percent usually have issues affording other necessities including clothing, food, medical care, and transport. 

 

Rental affordability is a common problem across the USA. 

 

Salary isn’t increasing at the same rate as housing expenses, while rent keeps on rising. 

 

The studies show that wages in Florida, California, and Michigan haven’t kept up with raised housing expenses, and affordability increased only for homeowners and not for renters.

 

Is This Rule Suitable for You?

Many consumers have concerns about how to calculate this 30% of their income. Should you take your net or gross income? 

 

Only gross income is needed to calculate this amount. Look at your previous paycheck and determine your gross pay which is the salary before taxes, 401k, and health insurance. 

 

What if you are currently paying more than a third of your salary for rent each month? 

 

Financial experts would advise people to choose two options: they may either boost their earning potential or find a cheaper home. In case you are paying less than 30% of your gross income for rent at the moment, your finances are safe. 

 

Of course, every person is unique. The level of comfort can be different for each individual. If you require more cash on hand, you can adjust your 401k plan or choose less expensive insurance. 

 

On the other hand, each decision comes at a cost – if a sudden medical emergency occurs and you don’t have enough insurance coverage, you will have to pay medical bills out of pocket. 

 

Some consumers who are paying under 30% for monthly rent may still live paycheck to paycheck. 

 

If this is your occasion, you should look at additional ways to reduce spending and reevaluate your monthly budget.

 

Ways to Lower Your Rent to 30%

According to Housing Vacancy Survey issued by the US Census Bureau, homeowner and rental vacancy rates lowered during the global pandemic. 

 

The survey has gathered data since 1956 to estimate that both homeowner and rental vacancy rates reduced in 2019 and later during the COVID-19 pandemic. 

 

In the first quarter of 2022, the homeowner vacancy rate was 0.8%.

 

 

Link: https://www.census.gov/library/stories/2022/05/housing-vacancy-rates-near-historic-lows.html

 

How you can lower your rent expenses:

 

• Consider moving to another area. Have you thought about your current location? You may have to pay more than 30% of your monthly income for rent just because you live in an expensive plan. Consider moving to a cheaper alternative to lower this category of your monthly spending and still have a comfortable life.

 

• Find a roommate. Another helpful tactic is to search for a roommate to split housing expenses. This way, you will reduce spending and save more money for other needs and financial goals.

 

• Switch to work online. What if you could start working remotely? It may help you reduce transportation costs. Besides, you may want to move to a rural area or somewhere cheaper and still keep on working at the same job.

 

The Bottom Line

When you are renting a home, you need to define how much you need to spend on rent. Your monthly housing expenses should be manageable and affordable for your budget. 

 

A golden rule of thumb is to spend up to 30% of your gross income on rent. 

 

It will help you have enough funds left aside for food, transportation, health care, and other necessary costs. In case you want to have more flexibility, you may also try a 50/30/20 method.