Ideally, your monthly rent payments should leave you with enough money left over for bills, groceries, a bit of non-essential spending, and even savings. Here’s how you can figure out how much of your income should go toward your monthly rent.
What should your rent to income ratio be?
The 30% rule
A popular standard for budgeting rent is to follow the 30% rule, where you spend a maximum of 30% of your monthly income before taxes (your gross income) on your rent. This has been a rule of thumb since 1981, when the government found that people who spent over 30% of their income on housing were "cost-burdened."
The 30% rule is a general guideline that renters can follow, but they should also take into account other expenses and factors. For instance, if you have credit card debt or student loans to pay off, consider finding an apartment with rent below 30% of your monthly income, so you can put more of your budget toward reducing your debt.
Why you shouldn’t spend over 30% of your income on rent
If you have to spend over 30% per month on rent, you'll have less money left over for bills and important purchases, making it more difficult to build savings. Make sure that your monthly rent payments don’t prevent you from paying off credit card debt or loans: your rent shouldn’t cause you to fall deeper in debt.
If 30% doesn’t work for you
The 30% rule does not always perfectly align with your budget. When determining how much you can reasonably pay in rent per month, there are some other things to consider before you say no.
Try the 50/30/20 rule
The 50/30/20 rule is a popular method to follow when determining your expenses in your monthly budget. The rule entails spending 50% of your monthly income on essential expenses such as rent, monthly bills, and groceries, spending 30% on non-essential purchases such as going out to eat, and putting 20% into your savings account. If your rent pushes above 30% of your gross income, by limiting your monthly bills, you may be able to keep rent + bills less than 50%.
Work down student loans and debt
When you have considerable debt to pay each month, putting 30% of your income toward rent may still be too much. While finding a cheaper place to live can help you afford all of your essentials, consider reviewing and trying to reduce your expenses so you can put your money toward student loans and other debt.
Tidy up your spending habits
If you frequently eat out at restaurants, spend money on entertainment, or travel, consider how these expenses affect your monthly budget. If you'd rather live in a more spacious apartment or more appealing neighborhood, cutting back on these extras can help you afford your new space.
Think about where you live
If you live in an expensive area, you may have to spend more than 30% of your monthly income on rent. To maintain a balance in your monthly budget, find ways to decrease your spending in other areas to live comfortably or find other areas to live in for less.
How to calculate 30% of your available income for rent
To find your gross monthly income, take a look at your most recent paycheck and find the line calling out “Gross Pay” (what you're paid before taxes, health insurance, 401k, and any other benefits are removed from your pay).
Calculate your monthly Gross Pay
If you receive a paycheck every two weeks: Multiply your Gross Pay by 26 (to see your 52-week Gross Pay) then divide that number by 12 (to see your monthly Gross Pay).
If you receive a paycheck twice a month: Multiply your Gross Pay by 2 (to see your monthly Gross Pay).
Does 30% work for you?
If 30% of your Gross Pay is more than you're currently paying each month in rent, then you may be at a more comfortable level for housing. If 30% of your Gross Pay is less than your monthly rent, many financial professionals would suggest that you find a more affordable home or increase your income.
Ultimately, your level of comfort may also depend on how much is currently withheld from your paycheck. If you're well below the 30% recommendation for monthly rent, but still find yourself living paycheck-to-paycheck, and not being able to contribute to your emergency fund, you may want to reexamine your entire budget. You may be able to locate areas where you can cut expenses.
In the end, the 30% recommendation is a best practice, but it may not be exact and will depend largely on your income and where you choose to live. By using the 30% standard, you can better understand if your current home is sapping too much of your income, if you can afford to move to a more convenient neighborhood, or if you can upgrade to your dream location.
Tips to reduce your rent to 30% or less of your income
Split the rent with roommates
Sharing an apartment with roommates can help bring down the monthly rent costs per person. If you can find one or more roommates to comfortably share an apartment with, you immediately save a bit on your rent.
Zelle® is an easy way to split your monthly rent payments with roommates. Through the Chase Mobile® app, you can use Zelle® to send and receive money right away without paying fees (message and data rates may apply depending on your mobile service provider). The “Request and Split Money” feature allows roommates to easily divide and pay their rent.
Consider a new location
If your rent regularly exceeds 30% of your income, you may want to consider relocating to a more affordable neighborhood. Ask for recommendations from friends, family, and colleagues to see if there are better priced areas with similar amenities to your current location.
If your employer will allow you to work remotely, you may be able to move out of a high-priced city while maintaining a similar income. While some employers will take your city’s cost of living into account when providing you with a salary, other employers will be glad to keep you on at the same rate if you can do your work remotely without a dip in performance.
Ask for a promotion or find a new job
By increasing your income, you increase the amount you can safely tuck away for monthly rent. When your rent goes above 30%, see if your income can keep pace by finding a new role or, if the time is right, asking for a raise or promotion at your current job.
The bottom line: determine what monthly rent works for your budget
When determining how much you should spend on rent, consider your monthly income and expenses. It is recommended that you spend 30% of your monthly income on rent at maximum, and to consider all the factors involved in your budget, including additional rental costs like renters insurance or your initial security deposit. To find a rent price that works for you, figure out what you can afford and how much money you want to save. Once you find the right rent, you can focus on putting more money in a savings account to meet your long-term goals.