How Much Should You Spend On Rent?

Why The 30% Rule Isn’t Right For Everyone

For many, the 30% rule is a helpful and reasonable guideline for how much of their income should go to 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 latest data provided from Joint Center for Housing Studies, in the U.S. in 2020, nearly 30% of households spent more than 30% of their incomes on housing.

Housing isn’t like certain expenses where you can simply cut back 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 may be able to downsize if you find that your higher-end apartment is straining your budget, it’s much more difficult to find that wiggle room if you have a family or the lowest-cost apartments in your city already push you beyond the 30% threshold.

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.

Calculating How Much To Spend On Rent

So how do you know how much you, personally, should spend on rent? While 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 finding something that will work specifically for your financial situation, whether your goal ends up being 20%, 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 affordability when it comes to your potential 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 monthly income goes to your basic living expenses like utilities, renters insurance and more. You can easily do this by using Rocket Money^SM to set up a budget that includes as many or as little categories as you’d like, including custom categories for expenses that may be unique to you. This will also help you determine 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 also help 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.

Decide On Your Goals

Life is all about making tradeoffs. If you live in a 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 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 also factor in to help determine how much you should budget for housing.

What If Rent Is Too Expensive In Your Area?

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 monthly 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.

The Bottom Line: How Much Should You Really Spend On Rent?

If all this talk of budgeting and sky-high rent costs has you wondering what you should be spending on rent, you’re not alone. While it can be tricky to find the balance between living in a house you like and keeping the rest of your financial goals on track, determining exactly what your budget can handle will give you the knowledge you need to sign your new lease agreement with confidence.