Posted Sep 10, 2014
Budget 101: Determining Your Monthly Rent Budget
If this is your first time renting an apartment, congratulations! Living on your own can be very exciting. After all, you now have a place to decorate, store your belongings and host killer parties. However, renting also comes with its share of challenges – particularly the cost! While renting an apartment can seem prohibitively expensive, it’s actually possible to look at your monthly costs and calculate a rent budget that won’t put too much excess strain on you (or your wallet). If you’re wondering “What can I afford to rent?” and want to know more about how to figure out how much money you can allocate for your monthly rent, well, look no further. We’ve uncovered some easy tips to make sure your apartment is a peaceful respite, and not something that causes financial stress!
First, renters should approach their rent budget mathematically. Real estate experts believe that the typical renter should be able to comfortably afford to pay 30% of their annual income in rent. Thus, you can take your annual income and multiply by it .3. Then, you’ll want to divide that number by 12, which will give you the number you can comfortably afford to spend monthly on an apartment.
To specifically determine if you qualify for an apartment, you should get together with your roommates and add up your combined gross pre-tax income. Divide this value by 12 to figure out your monthly gross income. In most cities, landlords will required that this combined value is 3 to 4 times the monthly rent. It can be challenging for younger renters to financially qualify alone, so living with at least one roommate helps position you for better income qualifications. Want more perks of living with at least one roommate? In some cities you’re able to save up to 40% on your monthly rent.
While the above mathematical approaches are fairly simple and work for many renters, there are other factors you’ll want to consider when determining how much you can afford to pay for your monthly rent. Consider your lifestyle and daily expenses. Are there are any big costs, like medical care, or large debts you’re paying off, like student loans? If so, calculate how much those costs will be, then subtract that number from the amount of rent in your budget. This will ensure that you don’t allocate too much towards your rental, leaving you with too little for other important expenses.
Another important step to take when creating your monthly rent budget is to think about personal priorities. Some people place a high priority on the size or quality of their home, while others aren’t as picky about the space they live in. Make a list of all your day-to-day activities and priorities, and then parse out the cost for each. If you have several priorities that feel more important to you than the place you live, consider allocating more to those activities or items than to your rent.
Finally, it’s important for people looking for rental homes to consider the market in the city where they desire to rent. For example, there are several big cities in the U.S. where people will need to accept that they’ll have to pay more for their apartment than other cities. Some cities with a challenging market for renters include New York and San Francisco. Renters in those big cities (as well as plenty of others) can expect median rent prices to be exceptionally high at $3,175 and $3,285, respectively. Do some research about the place you’re planning to rent, and look at apartments that appear to be within your price range. If you see places that fit within your budget, that’s great! If not, you may have to expand your location search parameters or look at your budget and allocate more funds to your housing expenses and fewer funds to other things you may have originally planned for.
Ultimately, if you plan ahead and go through your proposed budget with a fine toothed comb, you can alleviate some of the stress associated with your monthly rent. Rent is the largest expense most people pay in a given month, so you owe it to yourself to take the time necessary to sit down and figure out the numbers before you actually begin your search. With a clear plan (and in certain markets, a touch of luck), you’ll be sure to find a place that fits into your budget and lifestyle.