Survivalist Pro
Survivalist Pro
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In simple terms, the 30% rule recommends that your monthly rent payment not be more than 30% of your gross monthly income. To calculate how much you should spend on rent, you'd simply multiply your gross income by 30%.
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Read More »When renting an apartment or house, it's important to determine how much you should spend on rent to keep your budget manageable. The 30% rule is one guideline for determining what you should pay. This rule of thumb for rent dictates spending no more than 30% of your income on housing each month. The reasoning behind it is that by capping your rent payment at 30% of your monthly income, you'll still have plenty of money left to cover other living expenses and to work toward your financial goals. But how does that translate to dollar amounts spent on rent? Here's more on how the 30% rule of thumb for rent works and how to apply it to your budget. Key Takeaways The 30% rule of thumb for rent recommends spending no more than about one-third of your monthly income on a rent payment each month. National housing guidelines have contributed to the 30% rule's use as a standard of rental housing affordability. The number of people in the U.S. who spend 50% or more of their income on housing has increased over time. One alternative to the 30% rule for rent is the 50/30/20 rule of thumb for budgeting.
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Read More »There are two major flaws associated with the 30% rule of thumb for deciding what percentage of income to spend on rent. First, it doesn't account for inflation, income stagnation, or rising rent prices. The median household income for U.S. renters was $42,500 in 2019, according to the most recent data calculated by the Center on Budget and Policy Priorities, a nonpartisan research and policy institute. However, the average U.S. rent for a two-bedroom apartment was up to $2,047 as of June 2022, according to data from apartment rentals website Rent.com. If you were to apply the 30% rule, renters in that income range should be spending no more than $1,062.50 on rent each month. The other weakness with the 30% rule for rent arises from the fact that it's not personalized to your situation. It doesn't take into account, for example, how much student loan or credit card debt you might be paying off. Nor does it consider how much money you're earning, what you pay in taxes, your financial goals, or the affordability of the real estate market where you are planning to rent. For instance, the typical monthly student loan payment in 2019 was between $200 and $299, according to data from the Federal Reserve. The average starting salary for a college graduate in 2019 was $53,889. In this case, using the 30% rule for rent, you’d allocate $1,347 a month for rent. Subtract $299 for your monthly student loan payment, and you're left with about $2,844 per month. That may seem like a lot, but that's based on gross income, which is before taxes are taken out of your paychecks. If you were single with a salary of $53,889 in 2021, you’d be in the 22% tax bracket. That makes your take-home pay about $44,848, or about $3,733 per month (before also deducting Social Security, Medicare, state taxes, or other deductions). If you do the math again, subtracting 30% for rent and $299 for student loans from this net monthly income, you're now left with about $2,314. That's more than a $500 difference from what you had based on your gross monthly income. And when you factor in transportation, health care, insurance, food, clothing, and utilities, that remaining money can disappear quickly. Conversely, let’s say you were a high-income earner making $250,000 a year. In that scenario, after accounting for federal income taxes, the 30% rule would say you could spend about $4,172 a month, or $50,068 a year, on rent. You certainly could do that, but if you're trying to save as much money as possible so you can, say, retire early, you may want to spend much less on rent. Note Basing your budget on net income (after all taxes have been taken out) rather than gross income can help avoid spending more than you realistically can afford on rent.
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