Trying to budget for rent can sometimes be a discouraging task. It doesn't help that many cities throughout the US are notorious for high rent prices.
In this day and age, it's important to balance out those books at the end of every month. You don't want to spend so much on rent to the point where you can't pay your other bills.
On the other hand, cheap rent probably means that the location is less desirable. The unit could also be in poor condition (think cockroaches or worn-down apartments).
What's the sweet spot for renting budgets? How much should a typical renter aim to spend on rent? Let's figure this all out!
Many experts suggest following the "30% Rule" when budgeting for rent.
You'll often hear that renters should assign 30% of their monthly salary towards rent. This advice is pretty much written in stone at this point! 😅
Yet, do most people make enough money to follow this rule?
It turns out the 30% Rule is flawed and outdated
Most people don't share the same lifestyle or finances. Also, once deductions get taken out of your paycheck, your money gets stretched thin.
This rule is even harder to follow if you rent in a bigger city. A majority of renters don't have a salary that allows them to put 30% of their earnings towards rent.
In 2021, the median monthly wage for an American was $4,040.
The Bureau of Labor Statistics recorded that Americans make a median wage of $1,010 a week. These numbers don't include taxes, either.
Not to mention that expensive states like California or New Jersey have higher taxes. Over 10% of your salary gets paid towards state income tax. You also can't forget that federal income tax gets added on to that!
So, depending on your residing state, the net amount you get will be even lower.
So, how do renters tackle budgeting when given all this information?
Start by establishing your true budget.
I'll be the first to tell you that I love to calculate how much my next paycheck is supposed to be. But, my calculations never factor in tax or state deductions.
Imagine my disbelief when the amount I actually get in my bank account is lower than I imagined (shocker, I know). 😅
It shouldn't even be a surprise at this point, yet many people overlook these reductions.
The wage you use in your budget has to be what you actually take home. Once you have this value, you can create a budget list with all your recurring monthly expenses.
A key point to note is that you should also give yourself a buffer. Expenses can be unpredictable, so it's good to give your budget leeway in case you need to spend more in a category.
The benefit of a buffer is that sometimes you won't use it. This extra money gets brought over into the next month!
Also, budgeting apps will make your life easier.
Some people enjoy making budgeting spreadsheets. And then, there are those that don't. 😅
If you don't want to go through the work of making your own budgeting system, there are tons of apps you can use!
Mint is an overall great budgeting app. Another good one is Zeta- geared towards couples with lone or joint bank accounts. For those that like the envelope budgeting system, you should check out Goodbudget.
The neat part is that all these apps are free!
Follow the 50/30/20 Rule when budgeting your expenses.
The 50/30/20 Rule doesn't just apply to renters. It's a great guideline for anyone looking to budget their heart away!
This budgeting strategy is far more intuitive and customizable than the 30% Rule.
You start with your "Needs". After all, your needs should always take precedence over your morning Starbucks. 😏
So, 50% of your take-home wage should go towards your essential expenses. Anything you need to survive will fall in this category. We're talking about housing (rent or mortgage payments), utilities, car payments, insurance, groceries. So on and so forth.
We then move on to 30% of your budget. This goes towards "Wants" (which do include your morning Starbucks drink).
Anything you'd want to have but don't need to live go in this category.
We're talking about media subscriptions, dining, after-work drinks, shopping, all-inclusive vacation getaways. You get the gist. 😉
The last 20% of your after-tax income goes towards "Savings". It's pretty much in the name, but this is what you contribute towards your savings account.
This category doesn't mean that you can only put money into a savings account alone. You can put it in an emergency fund or savings account. Put it in stocks, IRA contributions, cryptocurrency wallets. It doesn't matter!
The point is that you save money for retirement, bigger purchases (like a home), or emergencies.
The 50/30/20 Rule is flexible.
The useful part of this rule is that it's meant to act as a template. You don't have to follow these percentages to a T.
Maybe your focus is geared towards living in an expensive location. You can absolutely tailor your budget to put more than 50% of your income towards your needs.
With this budgeting technique, your rent can be higher than a third of your budget (referring to the 30% Rule).
What's important is that you offset higher expenses by saving in other categories.
However, rent isn't always about budgeting.
The rental market has come a long way. Nowadays, it's not only about paying rent to your landlord every month.
Some services can help you get cash back on rent. Lighthouse is one of them!
We understand- as much as you- how challenging it can be to budget high rent costs. We're tackling this issue by helping out our renters.
You can get cash back on your rent when you sign a new lease. That's extra money in your pocket to put towards something else in your budget.
If you're interested, you can check us out here!
Lastly, don't forget...
The goal is to form a budget that is sustainable and works in your best interest.
If you know that you don't want to sacrifice living downtown by moving to the cheaper suburbs, then that's fine! It's not sustainable to subject ourselves to things that don't fit our lifestyles.
Your budget should enhance your life. So, if you decide to pay more for location, balance your budget by saving in other areas.
Maybe you don't need that expensive phone plan. Or perhaps you can make coffee at home instead of buying it at a coffee shop.
It's all about compromise and adjustment! 😊
We hope you got some enlightenment on how to work your rent budget (and all other expenses in general). Share this article with friends or family if you think it'd help them as well!