The general suggestion for rent is 30% of monthly income, but many people end up paying far more. In fact, 1 in 5 millennial parents report spending 50-59% of income on housing, according to a 2016 report from the National Endowment for Financial Education. Crazy, right?
Due to rising rental rates and fewer available units, many renters are “rent burdened” according to HUD Guidelines and have difficulty paying for other life’s necessities. Wondering how you can avoid spending up to half of your monthly income on rent? Here are some tips.
Set a realistic budget
30% on pre-tax monthly income is the general rule of thumb when it comes to calculating an affordable monthly rent. A little more is fine, a little less is great. But it’s important to make sure you’ll have enough left over to pay any other monthly expenses you have. Expenses like student loans, car loans, credit card debt, TV streaming services, and other recurrent bills should all be included in the budget, as well as monthly food costs and gas costs (if you drive). The best way to figure out how much you spend in a month is to simply log your spending for a month and take a look at how much you spend and where you can potentially cut costs. There are tons of apps out there if you’re new to tracking, otherwise, a standard Excel spreadsheet or Google Sheet will do the trick. You can also use the MFA Budgeting Boot Camp Worksheet to see what are the typical expenses to include.
Be ready for add-on costs
Keep in mind that base rent costs often don’t include other expenses that might be tacked on later. Things such as utilities, parking, and pet costs are all expenses that may not be included with an initial rent rate. Generally speaking, utilities will cost 18-20% of your rent, parking spot costs are around $40-$90 in rural and suburban areas, but can reach hundreds of dollars in cities, and pets will cost around $100-$300 as an initial deposit and $30-$60 in addition to your rent every month. These costs may seem small when initially looking at them but can also take a monthly rent from $900 to over $1200 per month, meaning close to an extra $4000 in extra expenses over the year.
It’s best to ask a property manager up front about these potential costs rather than finding out about them after signing a lease.
Decide what’s most important to you
Finding an apartment that works best for you will involve a bit of give-and-take. It’s not the most fun thing to talk about, but it is necessary. Ideally, we would all live in a world where the most luxurious apartment has a rental rate of less than 30% of our monthly income, unfortunately, we don’t. So take a look at apartment amenities included at buildings or complexes in your price range and decide what’s most important to you. Do you want to be able to work out whenever your schedule allows? Make sure your apartment building has a gym! Not ready to invest in a washer and dryer and also hate going to the laundromat? Make sure your place has an in-unit washer and dryer! Compromise will be necessary, so think hard about what you’re willing to live without and what you absolutely must have.
Plan for the future
Generally, rental rates increase by 3% year-over-year. This is something to think about if you plan on living in an apartment for longer than one year. If you have issues affording rent the first year, you may be in real trouble the next year if rental rates increase. If you’re set on living in a building that is close to the top of your budget, ask the property manager if signing a two-year lease will freeze your rental rate and stop it from increasing during the second year. This is also probably a good time to take a look at extra spending to figure if you have a proper amount in savings or a rainy day fund (aim to have 3 months of expenses) to cover rent in case of job loss, injury, or other incidents.
Rent should be affordable enough that you can still pay all your fixed monthly expenses and have money left over for other living essentials. If not, you may want to reassess where you’re living. Think about getting a roommate, or moving into a roommate share, or be ready to give up even more amenities. Remember, wherever your first apartment is, it’s just a blank canvas ready for you to personalize and make it a home.