How Much Should You Spend on Rent?

Did you know that 44 million Americans currently rent? In fact, the number of renters in America has increased by over 870,000 since the beginning of 2020.¹ However, as renting becomes more popular, it's also becoming more costly. Nearly 60% of renters saw a rent increase within the past year, while just 38% said they saw their income increase.²

If you find yourself asking, “How much should I spend on rent?” you’re not alone. How much you should spend on rent depends on a variety of different factors. These simple tips can help you calculate a monthly rental budget.

What percentage of income should go to rent?

So, how much should you spend on rent per month? The answer can vary depending on your location, monthly expenses and more. Instead of a specific dollar amount, it’s helpful to think in terms of a percentage of income for rent.

You may have heard of the 30% rule for rent. This rule of thumb, dating back as far as 1969, says that rent should be no more than 30% of your gross income. However, many now find this outdated. It doesn’t account for a higher cost of living and expenses that are more common in today’s world, like student loans or dependent costs, like childcare or eldercare.

One popular calculation is the 50/30/20 method: 50% of your income for needs (such as rent, utilities, and groceries), 30% for wants, and 20% for savings and debt payments. This can help you get a more accurate estimate of what you can realistically spend on rent.

Another important consideration is the rising cost of living throughout the nation. In 2021, rent costs across the country rose 11.3%, the fastest pace in decades. Rent simply costs more than it did even a decade ago, so you may need to budget a higher percentage of your income.

Calculating how much rent you can afford

The first step in calculating how much rent you can afford is checking your monthly budget. If you don’t have one yet, you can try these tips for creating and sticking to a budget. Take a look at your existing monthly expenses and your income. How much do you have leftover? This can help you determine what percentage of income should go to rent.

Try to find ways to lower your rent-to-income ratio. See where you can cut back on extra purchases or reduce monthly expenses. You might also consider a roommate or renting out a room in your home, which can give you more wiggle room in your budget. Living with a roommate might not be your first choice, but it’s more common than you may think. In fact, one in three adults in the U.S. lives in shared housing, either with roommates or family members.

When calculating how much rent you can afford, remember that there’s more than just the cost of rent itself. Make sure to budget for other potential expenses, such as:

• Application and/or background check fee
• Security deposit
• First and last month’s rent
• Move-in fees
• Renters insurance
• Monthly parking
• Pet fees
• Utilities

A new lease on your financial life

It’s important to find a place that you love, but even more important to consider the bottom line. Before you spring for that extra bedroom or newly renovated kitchen, take some time to consider your current financial situation and future goals. And, don’t forget to factor in the cost of moving when calculating how much to spend on rent.

2. https://www.cnn.com/2022/08/15/homes/rising-rent-wages-housing/index.html

This article has been updated from a previous posting on October 8, 2020. Jessica Leshnoff contributed.