How much should you spend on rent per month?

January 13, 2020 by Ted Bauer

The general recommendation

Generally people recommend that you spend 30% of your monthly income -- before taxes -- on rent. A $50,000 salary, for example, is about $4,166 per month. Do 30% of that and it’s about $1,249 per month as your “ceiling” on potential rent. If you’re among the #blessed few making $100,000, that would double to $2,499 -- round it to $2,500! -- per month, which would, logically, get you more. 

Domu actually has a rent calculator you can use, and it will deliver a low-end (15% of income), a mid-range (20-25% of income) and a high range (30%+ of income) for your options based on earnings. Obviously, for some people, having a nicer apartment is worth sacrificing a few nights out or some fancy tech. If that’s you, look to the high range. If you’d rather spend your money on stuff -- or maybe even save it -- consider the low and middle ranges. 

Factor in student loan debt

Fact that may surprise you: only 32% of Americans have a college degree. If you’re in that boat and apartment-hunting, there’s a chance you’re paying off student loans. If you use the 30% rule above, you’ll still have income left over to make your payments, but it’s also helpful to consider ways to eliminate debt pre-30 or pre-35, because, generally speaking, debt is bad. (More coming on debt in a post later this week, actually.) On a 10-year repayment plan with 6.8% interest, for example, an average monthly payment is about $280-300. (Can be higher or lower; there are a variety of inputs to the equation.) Using the $50,000 salary example from up top, if you pay $1200 in rent and $300 in loans, that’s $1500. Your monthly is $4,166, or $2,083 per check. Try to put your loan payment due around the 15th as opposed to the 1st, because if both hit on the 1st, you’ll spend $1,500 and only live on about $500 until your next paycheck. 

OK, wait, but should we ignore the 30 percent rule?

Some have argued the rule is outdated, having roots in 1969 public housing regulations that capped public housing rent at 25% of a resident’s income (this increased to 30% in the 1980s). David Bieri, an Associate Professor of Urban Affairs at Virginia Tech, has written a bunch of papers on the topic of how much to pay in rent. As he explained to Earnest:

Bieri sees two problems with making 30% the de facto personal finance rule for renters: First, averages, by definition, do not take into account the huge variations of what individuals do. Second, the balance sheet and financial obligations of today’s consumers are vastly different than those of the 1960s on whom this rule is based. Americans back then, for example, didn’t contribute to 401(k) plans or have high student debt.

50/20/30

This is a budgeting system focused around spending 50% of your money on needs, 20% on savings/debts, and 30% on wants. It’s not perfect. But it’s a helpful model. 

If you use this type of model, one way to think about rent is … get roommates, or get closer to where you work, or get closer to a form of public transportation (not always great options there in DFW), or consider a “barter” system. This doesn’t always work, but if you have specific skills around fixing things, landscaping, social media marketing, etc… offer them to an apartment complex. Apartment complexes are often understaffed and stressed, and they have a lot of balls to juggle. They might take you up on an offer and drop the rent a bit in exchange for some service work. 

The bottom line

You know your budget, your income inputs, and your specific situation. Make the best decisions possible. Don’t go too high and stress out your bill-paying. Don’t go too low and get something you’re not comfortable coming home to on the regular. Find the spot that works for you. We can help!

About the Author

Ted Bauer

Ted Bauer is a writer/editor for White Rock Locators focused on as much cool content about the DFW Metroplex rental scene as he can possibly find week-to-week.