How Much Rent Can I Really Afford?

Searching for Apartments online is a lot like searching for cars online.  You are browsing around from place to place, getting a good feel for the market, how much certain amenities are, and in what location, and all of a sudden, a simple phenomenon happens.  You start to increase your budget to fit the apartment, rather than the other way around.   

How much rent you can afford is primarily dependent on how much income you make on a monthly or yearly basis.  While expenses and debts can make it hard to make a monthly payment, the primary factor in determining how much apartment you can or should rent is based on income. 

Getting the right amount of apartment is CRUCIAL in being able to keep and stay on your budget as you navigate apartment life.  Taking on too much apartment is not only going to make it difficult for you to make those payments, but it is also going to make everything else in your life cost relatively more to you as your disposable income has been reduced.  

When some of the little things in life get taken away from us, it can make it miserable.  You want to have enough money to be able to COMFORTABLY pay your rent, while at the same time having enough money left over to pay for everything else you need in your life, along with saving money for the future. 

In this article, I am going to go through how much apartment you should be renting for your income level.  How to find that number quickly and easily, and what that means for your new or current apartment. 

Ok, let’s go!

How Much Rent Can You Afford?

There are essentially two ways that can easily calculate how much money you should spend on your apartment each month, and both methods are 100% dependent on your income.  So, if you know that you have a ton of outstanding debts or other obligations that only you know about, you need to be able to include that into the calculation we do. OK?

First, the easiest method is to take your yearly income($50,000) and multiply it by (.30).  So the MAXIMUM you would want to spend on an apartment if you earned $50,000 would be $15,000 per year or $1,250 per month. 

The second method is like the first one but reversed, and it is the method that most landlords use when determining suitability.  Take the price of the apartment per month (1,000) and multiply it by (40).  This equals $40,000.  If the tenant says they make more than $40,000 per year, then it would be a good fit for them at the complex. 

The basis for these rules and methods comes from generally the same mentality.  You should only spend a CERTAIN amount, but no more, of your yearly income on housing.  Over a hundred years of data collection, the statistics show that if you commit yourself to spend more than that 30% of your yearly income JUST on housing, that you are putting yourself and your family and financial future at a much greater risk than if you would spend less on your housing. 

Now, obviously only YOU know your exact situation, how much apartment you need, and where you need it to be located.  All we are saying is that here are the tools to determine exactly how much apartment you can afford. 

See an ad for an apartment for $750 and wondering if this fits into your price range?  Multiply it by 40 to find out.  If you are making over $30,000 then this apartment is priced right for you.  If you DON’T quite make this much, don’t force yourself into an apartment you are going to struggle to afford in the first place, no matter HOW much social status you think it will give you.  

Go into something more reasonable until you have the money saved up or your income has increased to a point where you can afford that better apartment in the part of town you want to live in. 

How Much Rent Can I Afford On $40,000?

Let’s do some quick math. 

$40,000 x .30 = $12,000.  $12,000 should be the MAXIMUM you spend on your apartment for the year.  If the monthly rent is under $1,000 a month, then that apartment could be a fit for you. 

The reason that you don’t want to push this multiple of 30%, or .30, is because of all the other obligations you have in life already.  There is the cell phone bill, the water bill, all the other utilities, the gas bill, your car insurance, your car payment, food, clothing, spending money, travel.  Just……WOW.   Life can be expensive.  

When you think of your total pool of spendable money being 100%, realize that a third of it(30%) is all you can afford.  The other 70% has to be spent on all of the other expenses I listed above.  

If you wanted to do that calculation the other way, just take the monthly rent of the place you are looking at leasing from and multiply it by 40.  If the number is less than you make in a year, you should be able to afford the apartment. 

How Much Rent Can I Afford On Minimum Wage?

Figuring out how much rent you can afford on minimum wage is the same process as calculating rent no matter how much you make, but it is CRUCIAL for people who live paycheck to paycheck.  Any misstep here and the financial repercussions could take years to fix.  So, it’s important you know where the line is so you don’t overextend yourself on rent. 

Because state minimum wage laws are constantly changing, I am just going to pick $10/hr as an average, but you will be able to plug your own numbers in if you wish. 

Let’s say you are making $10/hr.  That’s $80 a day, $450 a week, and $1,800 a month.   Using the 30% method, first, we are going to estimate what you make during a given year.  That would be $1,800 x 12 = $21,600.  

30% of $21,600 is $6,480 a year.  This is how much you should be spending at MAXIMUM working at $10/hr.   That means that PER MONTH, you would be able to spend ($6,480/12)= $540 per month on rent.  

Minimum wage jobs are not designed to be worked by people for a long period of time.  If you are in school or just getting out of school and are working a minimum wage job, it is probably best for you AND another person that you find a roommate to help split the cost of an apartment.  

This way, there is more financial cushion for both renters, and neither one has to strap themselves to the hilt just to keep the payments going out on time.  

How Much Rent Can I Afford Based On My Salary?

As shown above, take your entire yearly income and multiply it by .30.   That number is going to represent the MAXIMUM amount of money you should spend on lodging during a given year. 

So, let’s say that you make $60,000 a year.  

Take $60,000 x 30% and you get $18,000 a year that you can spend on rent.  That comes out to $1,500 per month. 

When you are looking online for apartments, just go to their “sort” or “filter” feature on the site and put in $1,500 for the MAX rent you want to look for.  Then all the results that populate will automatically be in your price range.  

What Percentage Of Income Should Go To Rent?

The rule of thumb is that no more than 30% of your income should go directly to your rent.  Any more than that and a person has a tough time coming up with enough money to cover other expenses and obligations they have in life. 

This “rule of thumb” is essentially the life experiences of hundreds of millions of people over time, what worked for them, and what didn’t.  Specifically, where was the breaking point where too much apartment was what broke the bank.  

That number comes out to be about 30%.  Some resources will tell you 25% or even 20% depending on their methodology, but virtually no reputable resource will tell you that you should be spending more than 30% of your income on your apartment.   

Obviously, if you can get by WITHOUT spending the full 30%, DO IT!  There is nothing that says you MUST spend that full 30% on your apartment.  Let me let you in on a little secret of life… you will want to buy things in the future more urgently than you want a bigger apartment today. 

Keep that in mind as you are planning your next apartment move. 

How Much Rent Is Too Much?

In short, too much rent is too much rent when you begin to feel the financial pressure each month JUST to make the rental payment to your landlord. 

If you are feeling pressure each month just to keep up to date on bills and other expenses, more than likely, you have already overextended yourself. You need to feel comfortable that each month, you are going to be able to meet every debt payment and obligation without worry.  

That means that you may have to take your apartment down a notch or two, but this is only going to help you in the long run.  Eventually, you are going to want to be out of an apartment and into a condo or even a house, and not overextending yourself now will pay dividends for you later down the road. 

Briefly, take the amount of money you make in a given year and multiply that by .3 or 30%, same thing.  This will give you a rough estimate of the MAXIMUM amount of money you should be spending on an apartment in a given year.  

Spend any more than that and you will quickly come to discover that paying the rest of your bills just got a lot tougher!  Be smart, use the tools above, and make a wise choice when picking your first apartment!

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John Boettcher

Co-Founder of Apartment School and a previous renter turned owner of many multi-family properties across the United States, with many years of experience in all aspects of the apartment, real estate, and investing world.

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