How Much of My Salary Should Go Toward the Rent?
It may be time to get out on your own, but before you start shopping for an apartment or home, you need to know the parameters of your budget. Although general guidelines exist for the percentage of income you should dedicate to your rent, it's wise to look at your own specific expenditures and financial priorities to develop a rent budget tailor-made for you. By recognizing your current and future needs, you ensure that your money is flowing in the right direction.
Guidelines
Roughly 30 percent of your income should be dedicated to housing, according to "Kiplinger" editor Erin Burt. In creating your housing budget, remember that you're working off of your take-home income, or the income you receive after taxes. "Housing" refers to either money put toward rent or a mortgage payment.
Budgeting
Although general budgeting guidelines recommend spending around 30 percent on your rent, it may be more useful to create your own custom rent budget based on your financial priorities. People often look at the guidelines and then set their budget at whatever that amount is, without considering the fact that cutting back on housing allows for more savings or cash flow to other areas, such as debt payment. "Money" magazine editor and CNN Money columnist Walter Updegrave recommends working backward from your expenses based on your priorities to determine how much you should spend monthly on your rent. For example, budget for your retirement savings, debt payments, car payments, utilities and other expenses first, then see what you have left to work with.
Warnings
Choosing to make your rent a higher priority than your savings may allow you to live in a nicer place at the moment, but it also means you're doing your future a disservice. For example, if you don't make payments to your retirement account a priority, you're actually spending your retirement money early. Even if you do have a large chunk of money left over after calculating your necessary expenses, don't blow it all on a rental. Unlike home ownership, when you're a renter, your money is gone once you pay the rent. Save up to make an investment that will grow.
Considerations
Rental prices vary greatly by area, and although pay generally reflects the standards for the part of the country in which you live, you may find that you still can't afford to rent a place on your own. In that case, you may consider moving to a more affordable neighborhood or finding a roommate to share in the expenses. Remember that the lower you keep your rent payments, the more you have to save for future investments. However, it's vital to research the safety of an area before simply accepting a low rent.
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