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How Much Should I Really Spend On Rent?

Molly Grace6-minute read
February 21, 2022

Every day, consumers are given all sorts of advice about what they “should” do with their money: how much they should spend, how much they should save, and everything they should be spending it on and saving it for. And since housing is typically the largest expense in most people’s budgets, there’s no shortage of advice on how much renters should be spending each month.

With all this noise, it can be hard to figure out what makes sense for you.

Really, the question to ask isn’t what you should spend on rent, it’s “how much can I afford?” The answer to that, as you’ll see, depends on your situation.

What The Experts Advise

You may have heard of the 30% rule, which is probably the most famous piece of housing budget advice. The rule states that a household should spend no more than 30% of its gross income on housing costs. This applies to both the percentage of income you spend on mortgages or rent. So, if you live by yourself and make $3,000 each month, following the 30% rule would mean not spending more than $900 per month on rent. Two people living together both making that same income could afford twice as much per month.

This rule has been repeated by financial experts for years now, but there’s some debate over how useful it is when prescribed wholesale to the population at large, or whether it’s even practical in an environment where housing costs are rising so quickly when compared to wages.

How Much Of Your Income Should Go To Rent

For many, the 30% rule is a helpful and reasonable guideline for how much they should spend on housing each month. However, as affordable housing becomes more difficult to find in many areas, many middle- and lower-class workers are finding that they have to spend more than 30% of their incomes to afford a place to live.

In the U.S., 31.5% of all households currently spend more than 30% of their incomes on housing, and 1 in 6 pay more than half.

Housing isn’t like certain expenses where you can simply cut back and tighten your belt if you find you’re spending more than your budget can handle. Often, renters don’t have much of a say in how much they spend on rent; it’s up to market factors in the area they live in. While you can certainly downsize if you live alone and find that your higher-end apartment is straining your budget too much, it’s much more difficult to find that wiggle room if the lowest-cost apartments in your city already push you beyond the 30% threshold.

It’s also not really a great rule for those who make much more than the median income for their area. If you’re a high earner, spending the full 30% could mean paying way more than is advisable.

So why do we even have this rule in the first place?

Originally, the rule was meant to be fairly limited in scope. It came about from income limits in public housing programs. The 30% threshold was put in place in the early ’80s to ensure that low-income families in public housing wouldn’t spend more than 30% of their income on rent. Eventually, 30% was adopted as a guideline for the general population.

While guidelines can sometimes be helpful in setting a baseline for what people in general should be spending, it’s important to remember that your financial situation is unique to you, and your budget should be calculated with that in mind.

Creating A Realistic Housing Cost Ratio

The nice thing about guidelines is that they don’t require too much work on your end. Though creating your own personalized target for what percentage of your income you want to spend on rent will take some effort and a little bit of math, it’s worth it to find something that will work specifically for your financial situation, whether your goal ends up being 10%, 30%, 40% or something else.

Here are some things you should think about as you create a housing ratio that works for your budget:

Determine What You Can Afford

You likely already have a pretty good idea of what price range is affordable for you when it comes to housing costs, but if you aren’t sure just how high you could or should go, it can help to do some math to figure out how much of your income goes to your basic living expenses, and how much you can spend on rent while still having money to save for financial goals or afford things that bring you joy.

It will help, too, to look at how much debt you have. While someone who regularly carries a credit card balance and is currently paying off student loan debt might want to keep their rent costs at the lower end of the spectrum, someone with no debt or similar obligations may be able to spend a bit more.

Consider Your Goals And Wants

Life is all about making tradeoffs. If you live in the more expensive apartment, you might get more joy out of your living space, but you’ll also have less money to spend on, say, travel.

Think about what your goals are, what you’re willing to give up or cut back on and what you think will make you happiest in the long term.

Consider Your Lifestyle

You should also consider what you want out of your living space. Are you a homebody, or do you really only need a place to keep your belongings? Some people, either because they live busy lives, travel frequently or spend the majority of their time elsewhere, don’t require a whole lot from the place they live. If this is you, you may decide you can live in a cheaper apartment without any of the amenities that some people pay more for. On the other hand, if you are always at home and need a space that is relaxing and comfortable, you might find it worth it to allot more of your budget for a decent place.

Consider your household as well. If you have children, you may need a place with more square footage, which typically costs more. Or, you may want to be located within a well-rated school district. These factors will also help determine how much you should budget for housing.

If Rent Is Too Expensive In Your Area, Consider Making Bigger Changes

The problem with giving renters blanket advice about how much they should spend on rent is that rent costs vary widely depending on what area you’re in. In some more rural areas, the cost of living can be relatively low. And in some cities, housing costs can be prohibitively high.

In New York City, the most expensive city to live in the U.S., the median rent cost is $5,133 in Manhattan. While people in high-cost areas tend to be paid a little higher than average since the cost of living is so high, many people in these cities are still living well beyond the 30% rule. In our New York example, the median household income is $79,781. To follow the 30% rule, this median household would have to only spend around $1,995 in rent each month – over $3,000 less than what they currently spend.

So, what can you do if you’re in an expensive area and are having trouble finding a place within your price range? You might need to consider some alternatives to your current situation. This could include moving in with a roommate (or several roommates), looking for a better-paying job, taking on gig or freelance work on top of your current job, or even moving to a less expensive area nearby. For example, if you’re living in the city to be able to be close to your job, moving to a more affordable suburb might be worth the longer commute.

Making It Work

If all this talk of budgeting and sky-high rent costs has you wondering why you ever moved out of Mom and Dad’s place, you’re not alone. While it can be tricky to find the balance between living in a house you like and not going broke while doing it, looking at the numbers and determining exactly what your budget can handle will give you the knowledge you need to sign that lease agreement with confidence. Check out our personal finance learning center for more articles like this one.

Molly Grace

Molly Grace is a staff writer focusing on mortgages, personal finance and homeownership. She has a B.A. in journalism from Indiana University. You can follow her on Twitter @themollygrace.