It goes without saying that you shouldn’t spend more money than you make. This is definitely true when it comes to budgeting for an apartment. Whether you’re looking for apartments in San Francisco or rentals in Raleigh, NC, you want to rent a place that balances comfort and amenities with cost. But how much of your income should you spend on rent? There’s more than one correct answer, and Rent. is here to help you break it down. In this article, we’ll go over several ways to determine what percentage of income you should spend on rent. After finding the method that works for you, budgeting for your next apartment will be a breeze.
What percent of income should I spend on rent?
To answer this question, many refer to the “30 percent rule.” The rule stems from the Brooke Amendment, a 1969 U.S. Housing and Urban Development Act that capped rent in public housing projects at 25 percent of a tenant’s income. The cap was increased to 30 percent in 1981. The idea that you shouldn’t spend more than 30 percent of your income on rent stuck, and the rule was born.
Also, when landlords consider a renter’s application, they typically want to see that your gross income is three times the rent amount.
Following the 30 percent rule for rent would mean that if your gross income is $42,000, you shouldn’t pay more than $1,050 a month. But what if you’re in San Francisco, where the average monthly rent for a one-bedroom apartment is $3,539? Your gross annual income would need to hit $127,404 if you were following the rule.
There are other factors to consider and other ways to look at how much money to spend on rent.
6 reasons you may want to ignore the 30 percent rule
The 30 percent rule can serve as a solid budgeting benchmark, but it’s not a one-size-fits-all solution. As Harvard’s Joint Center for Housing Studies puts it, “A household making $30,000 annually would have $1,750 in income left over each month if they devoted 30 percent of their income toward housing, while one earning $15,000 would have half that amount. Since it is conceivable that higher-income households can spend more than 30 percent of income on housing and not be financially burdened, there is concern that the 30-percent standard may overestimate housing affordability problems for higher-income households.”
Here are some reasons why it might make sense for a renter to disregard the 30 percent rule:
1. You’re determined to live close to work
In a city like Boston where drivers lose 149 hours a year to traffic congestion, according to the data firm INRIX, you might be willing to pay more for an apartment near your job. The higher rent cost might be slightly offset by the time and money saved on transportation.
2. You’ve dumped your car
On a similar note, you might be able to get by without wheels if you live close enough to work. No shelling out for car payments, insurance, gas, and maintenance might give you enough dough to afford higher rent. You could walk, cycle or take public transportation to work.
3. Basic amenities are covered
If your rent includes cable, internet, laundry, utilities, and parking — in other words, all those things you’d have to pay “extra” for anyway, bundling them into your rent budget makes sense.
4. Special amenities are also covered
Additional amenities like gyms can make it reasonable to spend a higher percentage of your income on rent. The average person spends $40 to $70 per month on gym memberships. You might spend more to live in an apartment building that has a fitness center for its residents.
5. It’s just not possible where you live
Think San Francisco, Chicago, Boston, Manhattan, Washington, D.C. — the usual suspects. Average rents in these cities can often be too high to reasonably spend less than 30 percent of your income. You might consider spending slightly more if living in a larger, more expensive city is non-negotiable.
6. You’re making good money
If you’ve got a secure, great-paying job and little to no debt, you might consider spending more of your monthly income to rent something more high-end.
Why the 30 percent rule may no longer apply to everyone
Since 1981, when the 30 percent rule became widely known, the financial landscape has shifted dramatically. Paychecks are stretched differently today. Many Americans now face significant student loan debt—over 45 million people with an average loan of about $30,000, which translates to monthly payments often close to $400. Additionally, saving for retirement has evolved with the introduction of 401(k) plans, which means more income is earmarked for the future. Medical expenses and health insurance costs have also increased substantially, becoming a larger share of personal budgets.
With these added expenses, the 30 percent rule may feel restrictive or impractical for many renters today. However, the rule can still serve as a helpful guideline for determining rent affordability, offering a benchmark to avoid rent costs that may impact other essential needs like food, transportation, and medical care. Ultimately, while the 30 percent rule provides a good baseline, each person’s financial circumstances are unique, and finding the right balance is essential. For some, sticking strictly to this rule may not be realistic, while others may benefit from its structure.
Alternatives to the 30 percent rule
There are some other ways to figure out how much you should spend on rent each month and still get the occasional iced mocha cappuccino.
1. Try a rent calculator
Once you’ve figured out a budget, use a rent calculator to help determine how much rent you can afford on your salary. The calculator will consider which city you want to live in, the type of space you’re looking for and your annual household income to come up with a decent ballpark figure.
2. A personal budget
Who looks at their gross dollar amount when thinking about how much to spend on rent or anything else? It’s your net — what’s written on your actual pay stub after your taxes, health insurance, retirement funds, flexible spending account, etc. — that you should consider. When developing your own budget:
- Figure out how much you can afford in rent by thinking seriously about your must-haves, your lifestyle, your financial obligations
- Take time to track your spending; three months’ worth is a good barometer
- Remember to pay more than the monthly minimum on any credit card debt
- Look for savings on things like car insurance, cable costs, groceries
- Use one of the many free online budgeting tools. You can connect all of your financial accounts so you get the big picture.
3. The 50/20/30 rule
Popularized by Elizabeth Warren in her book “All Your Worth: The Ultimate Lifetime Money Plan,” the rule encourages you to divvy up your after-tax income this way:
- 50 percent for living expenses and essentials rent, utilities, groceries, transportation
- 20 percent for savings, investments, debt reduction (such as credit card payments)
- 30 percent for things you want rather than need — travel, dining out, entertainment, hobbies
Monitor your spending for a few months to see what money you have to work with. This will work if you’re self-employed, but if your monthly income is erratic, it may take you longer to get all the information you need.
What’s good about 50/20/30 is its flexibility; you can play around with the numbers to individualize it and make it work for you.
4. The 80/20 rule
If you’re looking for a less complex alternative, this is an easier way to go. It’s a simplified version of the 50/20/30 rule that stipulates that you prioritize savings over spending. No categories required.
- 20 percent of your income goes to savings
- 80 percent of your income is for all the other stuff
What does savings mean? Money for retirement (long-term) as well as emergency funds (unexpected needs).
If you want to get fancy, you can divide the other 80 percent up by needs (food, clothing, shelter) and wants (toys, travel, entertainment, etc.).
5. The envelope system
Some people are more tactile and visual than others. Cashing your paycheck and physically putting money into various envelopes labeled by expense can help you see exactly how much you need and have leftover each month.
How to save money on rent
In addition to proper budgeting, there are other ways to mitigate the costs of renting an apartment. Moving in with roommates allows you to split the cost of rent. Signing longer leases can temporarily shield you from regular rent increases. Additionally, you can search during the fall or winter seasons when demand and prices tend to be lower.
Whichever budget you decide to go with and whichever way you determine how much of your income you can spend on rent, remember that you’ve got to follow the path you’ve set up. Don’t forget to revisit your budget to make sure you stay on track.
