Conservative wisdom says not to spend more than 25% of your total income on rent or a mortgage. By this measure, if you make $800 per week, you can spend up to $200 per week, or $800 per month. This estimate is slightly conservative since there are 52 weeks in a year, not 48, but you get the idea. An easier way to look at this is to only look at prices less than your weekly paycheck. If your weekly pay fluctuates, take the average across several months to determine your average cash flow.
Budgeting for rent is not an exact science, so here are other considerations:
Location. Will you be commuting more if you take a lower rent further away? Will spending money commuting be equal to paying more for a place that is within walking distance or public transportation? If you live further away and will be driving to work factor in any tolls, gas and parking expenses.
Amenities. Really think about the amenities you want and can not live with out. Is laundry in the building a must? Do you require AC? Are you looking for a place recently renovated? All of these conveniences tend to add on to the rent.
Utilities. If the space comes with an air conditioner and you will be using it, ask how much it costs to operate. The same goes for a dishwasher, electric heat, and laundry in your unit. If you will be paying for heat separately, call the heating company and find out the annual operating costs. You should do this with water and sewer if you are buying a property as well. I never paid more than $40 per month in electricity when I rented. As a home owner I pay close to $150 per month. The difference is staggering. I am now paying for laundry, electric hot water, dishwasher, more lighting, a dehumidifier and a radon mitigation system in the basement. All of these operating expenses are factored in when determining what I can afford for rent or a mortgage.
Size: The larger the space the more expensive to heat and cool and generally speaking, the more furniture and window treatments you may need. Similarly, if you live alone or are getting your first apartment you will have to supply all of the household items. Before you jump at the chance to move into your own space, be realistic about what you will need to do so.
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Great Info and Article!
from: http://www.insiderater.com
I guess this makes sense if you live in a small town and make a decent amount of money, but in all the cities where I've lived I consistently spend 40-50% of my income on housing. If you're making 30-35K a year and you live in an area where rents frequently run over $1000 per person, what's a girl to do?
Not owning a car, not eating out, and not traveling really helps :/
Same Goes For NYC apartments
from: http://www.insiderater.com
Not more than 25%?! Whoops....
Conventional wisdom in these parts is no more than a third of your income. In fact, most property managers will spell that formula out for you when they're asking to see your recent check stubs. I don't know anyone who makes enough to spend only a fourth of their income who doesn't just opt for something nicer, anyway. :-)
I was always taught that the 25% figure was before tax. Which more or less works out to be about 30-40% of after-tax income.
agreeing with kathleen....i live in baltimore city near the harbor & when i first went out on my own i was told 30-40% was realistic for a single woman. im pretty comfortable with that figure considering i walk to work, restrict my food costs, things like that
Try finding a place to live for under $800 a month in the Chicago suburbs! I wish, 25% of my income would be about $530. I agree with the concept, but in reality it's not quite possible. Especially as a single person. Living expenses out weigh income around here, makes it tough to get ahead.
Our house payment is only 25% of our income, and that's on a 15 year loan. But then we also have 4 people in 1300 sq. feet. We could afford a larger/nicer home, or larger newer cars, but why?
Conventional people don't live in NYC.
This makes NO SENSE AT ALL.
To figure out how much you can afford, look at how much you spend on other, non-housing costs, and how much you want to save. See what's left over. That's what you can afford to spend on housing (or on something else).
For many people, that might be 25% of your income. But if you are making much less than average, you might have to spend the majority of your income on housing. If you make much more, you might spend only a very small percentage of your income and it might be fiscally ridiculous for you to spend a full 25% on it.
I agree when living in large cities, you have to take an uncoventional approach at times.
Luckily, I currently spend about 20% of my income on my housing costs but have no desire to move to a "nicer/bigger" place. I'd rather spend the money travelling.
Hey, that picture! That's my street in Reykjavik!
I spend about 30% of my total income on my house payment. I guess I'm doing good. A raise or two and it will be 25%.
In Australia around 40% is considered ideal, although our housing are considerably more expensive than most of the US.
I earn around $750 a week (after tax) and pay $300 of that on my mortgage, and I do okay. Which is not to say that I'm not looking forward wistfully to 2015, which is when my mortgage should finally be paid off.
Huh. I did not know any of this stuff, but I spend exactly 25% of my after tax salary on my bond. Although my husband and I live together, which cuts down costs. If I lived alone it would be well over 1/3 if I wanted my own place.
We aim for the 1/3 post taxes. But I like the 50/20/30 model of budgeting anyway: of your post tax income, 50% is your needs like housing, car, food, medical, etc. 30% is for funny money (vacations, fun, whatever you want). 20% is for saving (pay down loans, put in savings, invest).
The 50% number for essentials is more flexible for me.
Memo, "Conventional people don't live in NYC". AHEM! I'll take that as a glorious compliment. :)
Housing in New York City can be had for a steal if you qualify (as in, make less than the required income cap) in an HDFC (Housing and Development Fund Corporation) building.
See a link about it here: http://en.wikipedia.org/wiki/Housing_Development_Fund_Corporation_(HDFC)
I made less than the cap (at the time I made 39K a year!) so I qualified. Here I am earning nearly triple that a few years later and I may still live here as I am the owner of this part of the Cooperative.
There are only about 1,000 HDFC coops in the city so if you make less than the income cap to start with, go for it! Do your research.
That being said, my housing fees (maintenance and mortgage) adds up to about 20% of my monthly costs.
I only make around 300 a week after taxes, finding an apartment that onlys costs 25% of my income is hard to find. Luckily the dorm rooms here are only 1850 for 8 months.
Actually that number should be closer to 40%. What extra conservative or idealistic place does that number come from?
as an earlier commenter said, this is just impossible for some people - in my case, a single person living in a city who is past the age of room mates. This article is just a massive downer.
I live in Chicago and my rent is 21% of my gross salary. I have a two bedroom in the downtown area and I can bike to work in 15 minutes.
I refuse to live beyond my means.
as someone whose income has been slowly catching up with her housing costs, I can say that ...
more than 60% is awful, terrible, horrible
a little under 50% is actually kind of OK, and allows me to save 15-20% monthly
in the end all that "conventional wisdom" is just a basic guideline, imo, but you have to adjust it to your own priorities and needs
I make about $720 a week before taxes, but only end up taking home about $475 a week after taxes, insurance, 401K, etc. So basically, I can only afford to pay $475 a month...I'm screwed.
I in the DC metro area and we spend about 10% of our income on housing...it absolutely can be done.
I agree with the "not always possible" crowd. While I spend around 35% of my income on housing now, there was a time where that was a dream. If we chose to buy a house, we would end up spending WAY more. However, house prices have significantly dropped in our area because we hit a bust cycle for a bit there, but that still puts the average house at nearly 400 000. You can certainly get cheaper places, but that means sacrificing safety and proximity to downtown, which in my city means likely having to buy a car (our transit system is okay, but extremely lacking in the 'burbs).
In some places you can definitely do it on 25%. It just isn't always possible.