Those who are just striking out on their own may be wondering what amount of their income should be spent on rent. Here are some easy calculations to help you estimate rent, and answer the question, "how much should you spend on rent?"
A Reality Check
You have just found what you think is the perfect apartment and the rent seems affordable to you. Now it is time for a reality check. There are certain factors that should be taken into consideration when you are trying to determine how much should you spend on rent. HUD (U.S. Department of Housing and Urban Development) suggests that your housing costs including utilities (e.g., heat and electricity) should not exceed 30 percent of your monthly income. However, this is not as cut and dried as it might first appear.
To calculate how much should you spend on rent, use this formula:
A) Calculate monthly income after taxes for all members in the household who will be responsible for the rent;
B) Reduce this amount by any child support payments or alimony payments
C) Multiply the balance by .30
This amount is the maximum you should be paying for rent plus electricty and gas (or heating and lighting).
Image: Wikimedia Commons: Ghouston Source: http://www.hud.gov
Now that you have calculated your maximum ideal rent, there are other items that you need to consider before you can determine how much should you spend on rent. Most renters have other obligations that must be taken into consideration before they can determine how much of their income that they should be spending on rent. This number varies depending on a number of factors including your household size, your current debts, whether your medical insurance is paid for through payroll deduction and of course whether you intend to take out rental insurance (recommended). Keep in mind that more landlords are now requiring tenants to maintain renters insurance and this amount is over and above your rental expense.
The following items should be added together:
- Car Payment
- Insurance Payments (medical, life, renters, automobile)
- Credit Card Debt
- Car Maintenance (e.g., gasoline, tune-up etc.)
- Estimate of grocery expenses
- Estimate of clothing expenses
- Telephone/Cable Expenses
Once you have calculated this amount, add it to the maximum rental amount and make sure that you have not exceeded your income. If you have, you either have to reduce your debt or reduce the amount of rent that you are capable of paying. You may need to explore your spending habits to find out if there are ways of cutting back to allow you to pay more rent.
Housing costs are different in every state and often vary widely from city to city within a state. Before you start looking for that dream apartment, you may want to consider determining the maximum rent that you can pay for that apartment. Make sure that when you are searching for an apartment that you know the maximum amount that you should spend on rent. This will save you time and energy during your apartment search.