Here’s How Much You Should Spend on Rent


Wondering ‘how much should I spend on rent’?

For most people, housing will be the #1 thing that they spend money on throughout their lifetime. Therefore, it is critical that you know EXACTLY how much should you spend on rent. It can be the difference between a comfortable retirement or no retirement at all.

There are tons of different rules for how much you should spend on rent and we are going to cover all of them here.

The 30% Rule

This rule states that you should spend on rent no more than 30% of your gross salary.

The 30% rule has been around a lot longer than you probably have. But it hasn’t really gone anywhere. It was first set by the government to cap public housing prices, but many still live by it today. In fact, one of us used to live in New York City for years and landlords always required you to earn 40x your monthly rent payment in salary or they’d require a co-signer. 40x may sound like a ridiculously high number, but when you run the numbers you see that it comes out to exactly 30% of your salary!

We strongly believe that this rule has stuck for decades because it is useful. The only thing we do, is to take it one step further. We believe you should only spend a maximum of 30% of your take-home pay, not your gross salary, on rent. Remember, the less you spend, the more you save!

How to Calculate Take-home Pay

We define take-home pay as your salary minus your taxes. If you are making payments like 401K contributions or health insurance payments directly using payroll deductions, then you need to add them back to your paycheck before applying the 30% rule. It is important to make sure you are only taking the taxes out of your check, otherwise you’ll be seeing a number that is too low.

If you aren’t sure what is coming out of your paycheck, you need to either get a paper copy of a pay stub or find one in your online employee portal. Once you have your pay stub in hand, you can see all of the federal, state, and local taxes which are deducted from your pay. You’ll also see all of the non-tax deductions if you have any.

You just have to find your net pay, add back the non-tax deductions and now you can use that number as your take-home pay. Most people will receive a paycheck every 2 weeks, so you’ll need to double the number, or add two paychecks together to determine your monthly take-home pay.

Once you have your monthly take-home pay amount, you can use our simple monthly rent calculator to determine how much your rent you can afford.

What doesn’t the 30% Rule include?

It is important to realize that the 30% Rule doesn’t include any housing related expenses like renters insurance, heat, water, other utilities, etc. The rule only covers the cost to keep the roof over your head.

This highlights the importance of trying hard to stay under the 30% of take-home pay for housing, because you may have a lot of extra expenses on a monthly basis once it is all said and done.

The 50-30-20 Rule

This is another rule that people use for general budgeting.

It says that:

  • 50% of your income should go to necessities like rent, utilities, groceries, insurance, transportation, etc.
  • 20% of your income should go to financial goals like saving for retirement and paying off debt.
  • 30% goes to your “wants”. This includes things that you’d want like new shoes, haircuts, saving for a vacation, furniture, etc.

This rule is a rough guideline, but we prefer the 30% Rule for rent because it is more specific. The more specific you can be with your budgeting, the more likely you will be to stick to it.

What if I live in an expensive city like SF, NYC, or DC?

Between the two of us, we’ve lived for at least a year in the following cities: NYC, Boston, Minneapolis, Philadelphia, Orlando, and a couple of small towns in Minnesota. So believe us, when we say we understand that rent in big urban cities can be ridiculously expensive.

The truth is that if you are committed to being financially responsible you’ll find a way to stick to the 30% rule. If you have to go up to 35%, that’s okay. But you’ll have to make up for it in another spend bucket.

It is important to realize that salaries in these high cost cities are higher on average. If you have a job that is paying you a Kansas salary but you live in San Francisco, then that could be a good reason to hunt for another job if possible.

Avoiding Lifestyle inflation can help you navigate a high cost of living city.

My first year in NYC I was set on living in Manhattan. The best way to make that happen within my budget was to split a 2 bedroom apartment with two other friends from college. We paid $1,000 to put up a wall to convert part of the living room into my bedroom. My monthly spend on rent was $1,050 per month, and my monthly take-home pay was $4,660. If you add in the cost of the wall to the monthly rent, I was still only spending 24.3% of my take-home pay on rent.

I was only able to do this because I didn’t have a family at the time, and I didn’t mind living in a smaller space. If you have kids or other constraints you may need to look at having a longer commute in order to afford the kind of housing that you want. If you absolutely can’t compromise on housing, that’s okay as long as you are able to make up for it in other parts of your budget. So now, do you know how much should I spend on rent?

What % of your take-home do you spend on rent? Let us know in the comments.


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