Before you look for a place, it’s smart – and easy – to figure out how much rent you really can afford. Before you start a serious search for places to live, it’s smart to figure out how much rent you can really afford. Setting a realistic rental budget now can save you disappointment later by preventing you from falling for the “perfect” place that costs more than you should spend.
Paying 30 percent of your income on rent used to be the basic guideline but that may be misleading. Is that income “gross” or “net” (before or after taxes)? Does the rent include utilities? And if you have student loans, a car payment, or credit card bills to pay, 30 percent just might not be possible.
Rental math made easy
Rent affordability calculator does the heavy lifting for you. Just plug in your monthly after-tax income, living expenses and debts, plus what you save and the city where you want to live. The results include a suggested rent you can comfortably afford as well as listings within that range.
More than rent
The realities of daily life add up, so before you fill in the calculator you might want to break down what you’ve spent the last few months. That way you won’t miss:
- The necessities: You likely have commuting costs (transit pass, car payment and insurance, gas), health and renters insurance premiums, credit card and school loan payments, as well as cell phone, Wi-Fi, groceries and utilities to pay for.
- The fun stuff: Now add what you spend each month for new clothes, your gym membership, daily coffee and occasional happy hour, Netflix and other entertainment. Then, last but not least…
- Savings: Ideally, some (even small) portion of your incomes should go into an investment account or savings plan each month. You’ll be building a nest egg for retirement or a home down payment.
Seeing what you spend right there in black and white might help you realize you need to cut back on dining out or hobbies. Plus carrying a lot of credit card debt can impact your credit score, which is checked by many landlords and property managers during the rental application process.
Splitting costs
If your rental range comes up short of your expectations, you might consider living with roommates. Splitting costs two, three, even four ways will give you a lot more financial breathing room. Just make sure the roommates you pick are people you will be able to live with for the length of the lease.
If you plan to rent with your significant other, take a good, hard look at his or her financial habits before signing a lease together. Discuss and agree on a firm, specific financial plan and put it on paper. It sounds unromantic, but nothing is sexier than being able to pay your bills. It’s important that the power of love doesn’t blind you to the financial red flags waving over your boyfriend or girlfriend.
And even if you’re lucky enough to have no car or school loan payments and no credit card debt, you may still want to cap your rental spending and use any extra money to save for a down payment to buy, instead of rent, you next home.