WilliamPaid, the online rent payment resource, recently conducted a survey to see what percentage of a person’s income did they pay toward rent. With over 450 responses, more than 70% pay at least 20% of their monthly income on rent.
Specifically, 45.7% said they pay between 20 and 35% of their income on rent, with 25.3% paying more than 35%. The remainder, 29%, paid less than 20%.
But, how much should you be paying? Many people cite a rule of thumb that your total housing costs should be between 30 and 35% of your after-tax monthly income on housing-related costs (including rent, utilities and other rental-related payments)..
That said, the real amount you can and should spend on rent depends on several factors. First, what other commitments do you have? For example, do you have larger than usual student loan payments? Do you also have a car payment, insurance and parking? Also, if you live in a large metropolitan area, you are likely to pay a higher percentage of your income in rent.
If you don’t have loan commitments or auto expense, you are likely to have a larger portion of your income available for housing. Nonetheless, when you can afford to spend more on rent, that doesn’t mean you should. If you stay in the 30-35% range, you will be saving for a down payment on a house or have extra money to put into a 401(k) or other savings.
The real key to determining how much you can and should spend is to put pen to paper – prepare a very specific budget without housing costs and see how much money you have left over. Then, consider what you really need in an apartment and can live without. RentBits.com has a great rental tool to check out average rental rates in various locations.
Overextending yourself on your rent payment is one of the fastest ways to getting in over your head. Being smart upfront (and possibly going without a few ‘nice to haves’) can save you big in the long run.