There’s been a lot of discussion about housing recently, especially as rent prices hit record levels. How much of your income should you spend on rent? Here’s how to tell.
I wrote a last post on the reasons why nobody is buying what you are selling, click here to read
The most common rule to determine how much to spend on rent is that it should be no more than 30% of your annual income. That includes your total income before taxes and other deductions are taken out.
It is pertinent to know that that 30% includes rent and utility costs like heat, water and electricity.
That means if you earn 3,000,000 a year before taxes. You must not spend more than 300,000 a year on your housing.
The 30% rule is based on how much a family can reasonably spend on housing and still have enough money left over. This is to ensure they can afford everyday expenses like food and transportation.
If you’re married or have a partner, keep in mind that this calculation includes the entire household. You’ll need to include their salary and debts in the equation as well.
So, is your current home affordable?. If it’s not, it might be time to consider a cheaper place to rent or think about refinancing if you can. Click here for an online rent calculator
Where you live affects everything from your commute to your workout routine. Factor in additional costs (or savings) you might incur depending on your rental choice.
Living further from the city center, for example, is often less expensive. But you could spend hundreds each month on transportation costs to commute to and from work and social engagements.
If what you can afford doesn’t align with the rental market in your area, look for ways to cut costs elsewhere. It’s natural — and wise — to look to nonessential spending to free up space in your budget, but you can often find savings amongst your necessary expenses, too.