More than 100 million people rent their homes in the US.
Just as the average salary varies from state to state, so do the average rental costs. In Hawaii, a family of four will pay $1,507 per month on average, whereas that same family in South Dakota would only pay $696.
If you are a first-time renter and in a tight spot, you have the option of applying for a personal loan or borrowing from your family or friends. To put it simply, working out how much to spend on rent will differ depending on your personal circumstances.
Read on as we take a look at how to work out how much you should pay.
Figure out Your Monthly Income
The first thing you will need to know is precisely how much you get paid each month.
There are several ways to do this. You could take a look at your payslips and look for the gross amount that you get paid each month before taxes. You could also divide your gross annual salary by 12 to find out your average monthly pay.
Once you have this figure, you’ll know exactly how much you earn month by month. Remember that taxes will be taken out of this amount, so this won’t be the same as your take-home pay.
Apply the 30% Rule
The most common rule of thumb when budgeting for your rent is to use the 30% rule. This means that your rent should not exceed 30% of your gross monthly earnings.
The simplest way to reach this amount is to divide your gross earnings by 10 and then multiply by 3. This will give you a ballpark figure of the maximum you should be paying in rent to be still able to live within your means. If your rent exceeds this amount, then you’re unlikely to be able to afford it in the long term.
Take into Account Other Outgoings
Whilst the 30% rule is a simple way of working out what to spend on rent, it isn’t perfect.
Some people have many more outgoings than others, which leaves them with less money left over to cover rent. If you have student loans, for example, this can eat up a large chunk of your earnings and so you may struggle to afford even 30% of your gross pay. You could instead try the 43% rule, which states that your rent plus any other monthly debt payments should not exceed 43% of your earnings.
Are You Worried About How Much to Spend on Rent?
You’ve now worked out how much to spend on rent. If your rent is higher than the estimated maximum amount of rent you can bear, or you’re still struggling to meet rent payments, look for a new place or ways to earn extra money each month. We don’t want you to skip your rent payments and get into more trouble.
There is nothing wrong with getting a personal loan if you’re looking for fast cash to help with your rent or for any other reason. Even if your rent is below your maximum budget, you may be struggling to pay the upfront costs involved in getting a new rental apartment. Or you might just want some extra cash to help furnish your new place.
Image source: Lorenzo Tlacaelel.