Are you able to rent a standard apartment asking $1200 rent a month or would you prefer to pay for an affordable apartment with a $700 monthly rent?
Taking on an apartment lease is a financial responsibility but when you know just how much you can afford each month, it’s easier to avoid the challenges that come with financial planning. Understanding your affordability also goes a long way to helping you choose the right rental for your lifestyle and your pocket.
If you’re looking for a new place to rent, whether you are a current tenant or a first-time renter, in this guide we can help you determine the monthly rent that is most suited to your income.
How Do I Know If I’m Paying Too Much Rent?
Is Your Rent too High?
As a rule of thumb, you shouldn’t spend more than 30% of your income on your monthly rent.
The government has released this requirement in a bid to assist low-income earners with affordable rental solutions.
How Much Should You be Spending on Rent & When Are You Paying too Much?
The Joint Center for Housing Studies at Harvard University stated that over 10 million people are paying more than half of their salary on rent. While there are many reasons as to why 50% of your income could be going towards your rent, it is important to find ways to balance your income and expenses or you could find yourself in a difficult financial position. When you can save on the rent, it means more money towards your goals and more money in your pocket.
Let’s look at how to budget according to the 30% rent payment rule.
How Can I Manage 30% of My Income on Rent?
Whether you rent a house or an apartment, there is no denying the rising costs of property and the financial constraints that come with it. So should you find yourself in a bit of a rental predicament, the 30% rule can help you better budget, so you don’t overspend.
Financial experts recommend spending no more than 25% to 30% on rent. This drastically reduces the possibility of finding yourself struggling money-wise and unable to cover essential expenses.
Let’s look at the following examples:
When you earn around $3500 per month, at 30% you can afford a rent of $1000. If you manage to remain within the $1000 to the $1100 bracket, you’ll find yourself with $2400 -$2500 to dedicate to expenses such as groceries, medical, and other costs.
Is the 30% Rent Rule Realistic?
If you can stick to a very strict budget, the 30% rule could work but factors such as inflation and changes in the monthly rent could make it difficult to remain within this range.
For those of us with debt whether a loan or a credit card, it becomes even harder to remain within the 30% rule.
What is better, is to create your own budget to determine just how much rent you can really afford.
Remember, it is not just about affording your rent, it is also about covering your expenses and putting some cash away for saving.
To determine how much rent you can afford, you should dedicate at least 20% of your income to saving and debt repayment.
Here’s 5 Steps You Can Take to Save for and Afford Rent
The following 5 steps are intended for those who may be renting but want to be able to afford a larger apartment without sacrificing savings or first-time renters who wish to save enough to move into an independent rental home or apartment.
I. Create a Detailed Budget
Before you look at rentals, calculate what your income is after-tax. Once you have your post-tax income, write down your expenses. From your debts to your daily needs, record every cost and deduct this from your income.
Of the balance, you should dedicate a percentage of your money to saving, and to plan for an emergency.
The money that is remaining will be available for rent.
How to Manage Your Debt
If you feel that you are paying too much towards debts and have too small a balance for rent, you can speak to your creditors and institutions and negotiate a more affordable repayment plan. This includes extending the terms of the repayment but settling a smaller amount every month, so you have a little bit extra to dedicate to rent.
II. Find Affordable Rentals
For those of us who need to make our income stretch a little bit further, look for affordable rental companies and communities to help you save on the monthly expenditure. When you choose an apartment with an average or lower than average rent, you may also pay a lower security deposit, that is if your credit and eviction history are in good standing.
Examples of affordable rentals include affordable housing projects, second chance properties, and many communities where landlords set a fixed rental rate for a 6 month or year-long lease. If you know that what you pay every month won’t fluctuate, you can better plan ahead and budget.
For those who are current tenants, read your lease agreement to learn more about your rent. Some landlords include terms that allow them to increase rent depending on the market and economic fluctuations and interest rates.
The only way to save on your rent is to research and compare. Remember, just because you can afford more on your monthly rent doesn’t mean that you must spend it. Where you find a place that is secure, meets your needs, and you can comfortably afford it, it is not always necessary to follow a trend and to put yourself in debt.
III. Save on Your Renters’ Insurance
Renters’ insurance is an important part of maintaining a safe residence. Should anything go wrong, it will provide compensation to replace and restore much of what is lost during floods, fires, and other types of unforeseen damages. If you need to budget and save, look for renter insurance bundles or packages that you can purchase to protect your belongings while saving on the overall cost.
IV. Compare the Costs of Apartments to Rent
Before you decide on a single apartment take the time to compare the monthly rental costs. Set alerts online concerning your preferences so you’re alerted as soon as a property becomes available.
Depending on your mode of transport and where you work, you may want to consider apartments that are slightly out of town or the main city because prices are generally cheaper.
While you should never sacrifice your safety for savings, don’t give up on smaller complexes with an average rental price. Many of these rentals are maintained by private landlords or property managers who take great care to keep the property and its tenants satisfied. Only with the appropriate research and rent comparisons can you see what it out there for what you can afford.
V. Build Equity
After some time of saving or investing and having built a fair amount of equity, you can use this money to satisfy outstanding debts. To help you with your savings plan, again, look at your income and expenses. Determine how much you can save every month and remain disciplined to ensure you build your finances to reach your goals.
If you are going to save your money at a bank, learn about accounts that accrue interest and will only allow you to withdraw a portion of the saving in case of emergencies. This is a great way to prevent dipping into your account and using the cash you’ve put away.
Even if you start small, you can have more than enough money for rent and perhaps enough or a deposit on a house in the future.
So, What Can I Really Afford?
Think about the 50, 30, 20 rule.
You take your salary/income after-tax where 50% goes towards your necessary expenses such as your rent, your water bill, your medical and gas or transport.
30% will be used for your general or daily costs from food to clothing and entertainment.
The remaining 20% you can dedicate towards settling debts and building savings.
Every plan will need to be adjusted to meet your unique needs. Look at unnecessary costs and how you can manage these to have more money left over at the end of the month.
Apartments range in monthly rent and the cost you can afford will depend on your income and expenses. Whatever you do, don’t put yourself in a very challenging financial position because of rent. Instead, you can look at alternatives such as second chance or affordable housing where you can save on rent and you have the opportunity to work towards your dreams and goals.