How Much Of Your Income Should Be Going To Rent?

By Doug Matus
Reviewed by Lauren Bringle, AFC®

The search for housing is a major part of the transition into adult life. Most people spend young adulthood in dormitories, at home with parents, or in cooperative arrangements where rent is kept low at the cost of privacy.

As a person moves further out on their own, housing becomes more of a budgetary concern, and it’s natural to wonder how much income should go to rent.

In all likelihood, rent will become the largest part of your monthly budget. Before you begin your next housing search, you’ll need to determine what amount of rent can serve your needs without capsizing your financial goals. So, how much of your salary should go to rent? We’ll cover everything you need to know in this comprehensive guide.

What Percentage of Your Income Should Go to Rent?

When determining how much income should go to rent, a good rule of thumb is to stick to around 30 percent of your monthly gross.

“Financially healthy individuals will spend 33 percent or less on housing expenses,” says Paul Moyer of “This will include rent, utilities and any insurance that deals with housing.”

For example, if your pre-tax monthly income is $3,000, your rent, utilities and renter’s insurance combined should cost less than $1,000. However, this 30 percent rule does not take into account other unavoidable monthly expenses, like student loans. If you’ve got a significant amount of debt, you need to consider it with your other monthly bills, which should then not exceed 43% of your gross income.

This 43% rule comes from the world of mortgage lending, in which housing expenses and debt become intertwined. Spending slightly less than half of your income on unavoidable expenses still allows for a reasonably high standard of life. Managing the threshold between rent and everything else, however, becomes trickier as debt rises.

Make Your Budget Work

If you have a lot of student loans or other debt, you may need to lower your housing standards to make your budget work. This could be as simple as squeezing your life into a smaller apartment — or it could necessitate more impactful choices, such as where you live. See our related article about credit checks for apartments.

For example, if you’re on a tight budget, expensive areas such as New York City and San Francisco can become untenable due to their high housing costs. If your student loan and rent eat up 60% of your income, it might be time to ditch the Manhattan studio and consider a change of scenery to have more affordable living expenses. See our related article about best cities to rent or buy.

“In today’s economy, where rents in many markets are sky-high, it can be difficult to find an affordable place,” says Kevin Gallegos, vice president of Phoenix operations for Freedom Financial Network. “Common tactics to save are to check out suburban locations or rent a "mother-in-law" apartment in a single-family home.”

Depending on your field and job opportunities, you can also look at areas of the country with traditionally lower living expenses. It might seem drastic, but the amount of money a telecommuter saves in rent can make a cross-country move worth the effort. Finding affordable rent prices for your annual income is key if you want to live within your means and be able to save.

Ways to Manage Costs

Once you’ve calculated your expenses and determined how much income should go to rent, you’ll probably want to find other strategies to save money. This becomes even more important if your expenses threaten to exceed your 30 or 43 percent limit. See our article about how much of your paycheck to save. Starting a budgeting plan now with your annual income can help you save big in the future.

“If you are spending above that threshold, you may want to consider a roommate,” says Brandon Schroth of PersonalLoansNow (an Australian company). “You can also consider an extended lease agreement, which will come at a reduced rate, or offer to make upgrades or repairs to the unit.”

If you can find a rental that covers the costs of utilities, you can budget slightly more toward your monthly rent payment. Location and proximity to work is another feature that can stretch your rental budget. If you can save money on transportation costs, for example, then you can spend more on your home. As for cuts, look to save money on recurring expenses such as cable television and other media subscriptions. if you plan on going with a higher rent price.

A financially astute person can craft a budget to live well within practically any means. It might take a little searching, but it’s possible to find an ideal home within your financial limits that still allows you to grow your savings account. After all, affordable housing comes with a couple choice amenities: fewer worries about finances, and more freedom to spend your money elsewhere.

About the Author

Doug Matus is a freelance writer who frequently contributes to the Self blog.

About the reviewer

Lauren Bringle is an Accredited Financial Counselor® with Self Financial– a financial technology company with a mission to help people build credit and savings. See Lauren on Linkedin and Twitter.

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Written on June 24, 2016
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Disclaimer: Self is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.

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