How much should you pay for rent?

You’re moving and putting together a budget, but just how much should you pay for rent? Whether you are moving to a new town, changing jobs or just want to get a better hold on your finances, you’ll want to know roughly how much you should pay for rent depending on your lifestyle and location. When it comes to discovering how much you should pay for rent, finding the sweet spot can save you some frustration down the line. Follow these steps to find out how much you should pay for rent, where you are willing to compromise, and where you aren’t.

Step 1: Do Some Apartment Hunting

Rental prices tend to fluctuate based on a number of variables including neighborhood, amenities, and season. Spend some time searching online for homes that you really like in the area you hope to move and reach out to a Realtor for assistance. While you search, it’s a good idea to take note of what you can get in various areas and price brackets. Plug your wishlist into different search sites and see what comes up. You may not get the dishwasher, gym, storage space, and eat-in kitchen, but you will get a better sense of how much your dream rental costs and what you want most in a home.

Step 2: Look at Your Finances

What are your spending habits?

Before you can determine how much you should pay for rent, you have to be aware of your cash flow. Create a budget spreadsheet that lists the money you have coming in and going out. Be sure to include all of your expenses, from student loans to cat litter.

If you are moving out of your parents’ home, estimate your monthly payments for electricity, gas, internet, and cable. If you are already out on your own, remember to add these monthly expenses to your spreadsheet.

When you record your monthly income, go ahead and take note of what you take home after taxes.

Now that you have your budget ready to go, you can tackle the real question: how much should you pay for rent according to this budget? To start, you can use an affordability calculator, but you will want to get more specific with your calculations down the line to ensure you find the right price for your personal lifestyle.

How much do you have saved for upfront costs?

Moving into a new rental can be very exciting and often very expensive. One way to judge how much you should pay for rent is by deciding how much you can afford to pay upon signing your lease. Most rentals require at least the first month’s rent upfront and one month’s rent for a security deposit.

Keep these costs in mind when you move. Your expenses will already be high if you are buying a new mattress or you just shipped your car across the country. Keeping yourself on a strict budget will help you avoid blowing through all of your savings before you’ve even moved in.

Ready done?

Step 3: Find Out if You Meet the 40x Requirement

On top of the upfront costs that come with signing a lease, most landlords need proof that tenants earn an annual income that’s at least 40 times the monthly rent. So if the rent is $2,000 a month, you would need to make at least $80,000 to be approved. This requirement will give you a ballpark figure for how much you should pay in rent before signing anything, so sticking to it could help ensure your monthly payments aren’t too much of a stretch.

Step 4: Find Your Preferred Percentage

So, you have your budget and you’re prepared for the upfront costs, but how much should you pay each month for rent? Often, allocating a fixed percentage of your income to paying for rent is the way to go. Here are the two most popular percentage guidelines:

The 30% Threshold

You may have heard of this guideline before, given its popularity among people want to know how much they can afford to pay for rent. This number was chosen as part of the New Deal to figure out who was eligible for subsidized housing, and it has been a go-to ever since.

The idea behind the 30% threshold is that you do not spend any more than 30% of your gross income on rent. Though this sounds good in theory, it can be limiting depending on the size of your household and where you live.

Certain cities make it hard to stick to this 30% rule since their housing costs are so high. When you ask yourself how much you should pay for rent when you move to a new city or neighborhood, also ask how much the average apartment rents for in your future area.

Step 5: Stay Flexible

While there is no perfect answer for how much you should pay in rent, these guidelines give you strong parameters to experiment with and tweak to fit your own circumstances. Compromising on certain amenities could help you to live more comfortably in the long run, so stay flexible to find the system that works best for you.

Now that you know what you need to budget for, how to prioritize your expenses, and the different percentages you can use, go ahead and build your own rental budget plan!