Personal Finance Basics

How much should you spend on rent?

June 17th, 2024 Jun 17, 2024 • Read time: 6 min

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If you’re in the market to rent an apartment or home, there are few things to keep in mind. You may fall in love with a luxurious rental that checks all of the boxes, but will the monthly price tag be too much to afford? The last thing you want is to be “house-poor,” a situation where you spend way too much each month on your home’s rent or mortgage and don’t have enough left over for other essential expenses.

So, the question is, how much should you spend on rent? Everyone’s financial situations are different, so there’s not a one-size-fits-all answer. But knowing how much you can afford goes a long way toward taking charge of your finances and being comfortable financially. Let’s look at some tips and strategies to help you figure out how to best afford your rent.

How much should I spend on rent?

The amount of money you should spend on rent each month is based on your income, or how much money you earn each month. There are a couple of rules you can follow when trying to figure out how much you should spend on rent. These rules are called:

  • The 30% Rule
  • The 50/30/20 Rule

Read on to learn how each rule helps you determine what you should spend each month on rent.

What is the 30% rule?

The 30% rule recommends that no more than 30% of your gross monthly income (your monthly income before taxes and other deductions are taken from your paycheck) should be spent on housing expenses–whether that’s rent or a mortgage payment. This helps prevent people from spending too much on housing and not having enough money left over for other important monthly expenses, such as food, utilities, insurance, and more.

Let’s look at how to figure out how much you should be spending on rent each month.

Say your monthly gross income is $3,000. To figure out how much you should spend on rent, multiply $3,000 x 0.30 (30%). This comes out to $900, which is the most you should budget toward rent or mortgage payments each month. Here is a chart of more examples that show you how to calculate your rent budget based on your gross monthly income.

Monthly Gross Income
30% Rent Budget 
$2,000$600
$2,500$750
$3,000$900
$3,500$1,050
$4,000$1,200
$4,500$1,350
$5,000$1,500

What is the 50/30/20 rule?

The 50/30/20 rule is a similar formula that helps you determine what you should spend on rent each month. This rule divides your net income–which is how much you earn after taxes are taken from your paycheck–into three different categories:

  • Needs (50%): This includes all your essential–or must-have–expenses that you need for daily living. Housing, food, transportation, utilities, and healthcare fall into this category, which should take up no more than 50% of your after-tax income. It’s important to note that rent should not total 50% of your net income; rent is just one expense that falls into this category.
  • Wants (30%): Think of this category as things in your life that you enjoy having but could live without. This would include vacations, hobbies, TV streaming services, entertainment, takeout or restaurant expenses, and other personal costs that aren’t necessary to have.
  • Savings/debt repayment (20%): While this is the smallest amount of income you should be putting aside, it is still quite important. That’s because this category includes savings for retirement, your emergency fund, paying off debts you may have, and other long-term financial goals. You should be putting at least 20% of your after-tax income toward this category.

Below is an example of how to budget your after-tax income using the 50/30/20 rule. We’ll use the $3,000 monthly income example again–except this time, the $3,000 is your monthly income after taxes and deductions. Using $3,000, your 50/30/20 split would look like this:

  • Needs: $3,000 x 0.50 (50%) = $1,500
  • Wants: $3,000 x 0.30 (30%) = $900
  • Savings/debt repayment: $3,000 x 0.20 (20%) = $600

Here is another chart you can follow for similar income examples:

Monthly After-Tax IncomeNeeds: 50% of Budget (This includes rent)Wants: 30% of BudgetSavings/Debt Repayment: 20% of Budget
$2,000$1,000$600$400
$2,500$1,250$750$500
$3,000$1,500$900$600
$3,500$1,750$1,050$700
$4,000$2,000$1,200$800
$4,500$2,250$1,350$900
$5,000$2,500$1,500$1,000

After-tax income vs gross income

You noticed that the 30% rule and the 50/30/20 rule use different types of income to calculate your budget. The 30% rule uses gross income, which, according to Investopedia, is “the total amount of income a person has earned before deductions against that income. Gross income is calculated as the total amount of revenue earned before subtracting expenses like costs, interest, and taxes.”

The 50/30/20 rule bases its calculations on your net income, also known as after-tax income. Bankrate explains it like this: “Net income refers to the amount an individual makes after deducting costs, allowances, and taxes. For an individual, net income is the ‘take-home’ money after deductions for taxes, health insurance, and retirement contributions.” Depending on your financial situation, you can use either rule to figure out how much you should spend on rent monthly.

Must I spend a certain amount of income on rent?

Of course not. Each person’s financial situation is completely different. What works for one person–even someone who makes the same amount of money as you–may not work for you because of many other factors. The 30% rule and the 50/30/20 rule are helpful guidelines that can assist renters or homeowners plan a budget that may work for them. But budgets often need to be adjusted for different types of situations, including:

  • Debt repayment: If you are in debt and are looking to pay your way out of it as quickly as possible, you may wind up dedicating more of your monthly income to debt repayment. That would give you less money to spend on rent each month.
  • Saving money: You may be saving your money to spend on something big, like a house, a car, school tuition, or other investments. If so, you’re probably allocating more money each month toward savings, leaving less money for rent.
  • Changing expenses: Sometimes monthly expenses change because of unexpected situations. In that case, putting more money aside for those possibilities can take away some of the money you’d normally spend on rent.

How can I afford my rent?

  • Find roommates: Sharing the cost of rent with roommates can significantly reduce your monthly expenses. Look for trustworthy individuals who are also seeking affordable housing options.
  • Search for a cheaper location: Consider looking for rental properties in less expensive neighborhoods or areas with lower housing costs. This may require some research and flexibility in terms of location.
  • Downsize or rent a room: If you are currently living in a larger space, downsizing to a smaller apartment or renting a room in someone else’s home can help reduce your rent expenses.
  • Increase your income: Explore opportunities to increase your income, such as taking on a part-time job, freelancing, or starting a side business. This additional income can help cover the cost of rent more comfortably.
  • Decrease other expenses: Review your monthly expenses and identify areas where you can cut back. This could include reducing discretionary spending, canceling unnecessary subscriptions, or finding more affordable alternatives for certain services.
  • Seek housing assistance: Depending on your financial situation, you may be eligible for housing assistance programs or subsidies. Research local government programs or non-profit organizations that provide rental assistance to individuals in need.

Finding the right rent amount

The key to affording your rent is finding the right amount you can pay each month. It may sound simple, but there are plenty of expenses and situations to consider. Using the 30% rule or the 50/30/20 rule can help you figure out what you should be spending on rent based on how much money you’re making each month. It is important to find a place that you’re comfortable calling home; however, it is just as important for you to be able to afford the rent.

Once you calculate the right amount you should be paying for rent, your financial situation will start falling into place. When you’re not overpaying for rent, you create financial stability, peace of mind, better credit, and even the ability to save for your future.

Author – Holly Munoz

Holly Munoz serves as Regional Vice President at Brundage Management, the management holding company that operates Sun Loan and related subsidiaries. Holly has over 15 years of experience in the loan ... Read more »

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