How Much Should You Spend on Rent?
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Think back to when you rented your first apartment. What were the most significant factors in deciding where to live? Was it close to work? Have a pool and gym? Furnished?
Chances are, the cost was the biggest factor. If it fits in your monthly budget, then you rented it.
If you haven’t had to go through this exercise yet, consider yourself lucky. But the day will come when you’ll need to figure out how much to spend on monthly rent, and you’ll want to be prepared.
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How much of your income should you spend on rent?
Deciding how much you should spend on rent requires considering many factors other than your income. We’ll go over them throughout this story and show you how much rent costs in major U.S. cities.
We’ll explain the general rule of limiting rent to 30% of your gross income and how to make renting a little cheaper.
The 30% rule
A rule of thumb for renters, or even homeowners, is to limit your monthly housing bill to no more than 30% of your monthly income before taxes (gross income). It became a general rule in 1981 when the federal government found that people who spent more than 30% of their income on housing were “cost-burdened.”
This benchmark is a guideline in the nation’s public housing program and mortgage lending standards. Spending more than 30% of your income on housing can make it challenging to be approved for a mortgage.
Other expenses should be taken into account, such as long-term debts. If you have credit card debt or student loans, renters should look for a rent price below 30% so they can use more of their money to reduce their debts. Paying rent shouldn’t mean falling deeper into debt.
Spending more than 30% on rent will leave you less money for bills and important purchases, including building savings such as an emergency fund. We’ll detail many costs of renting and living on your own soon, but first, we’ll explain what being “cost-burdened” looks like when you’re spending more than 30% of your annual income on rent.
‘Cost-burdened’ explained
Spending more than 30% of your gross income on housing means you suffer from cost-burden, a term defined by the Census Bureau and the U.S. Department of Housing and Urban Development.
An analysis by the Pew Charitable Trusts found that in Philadelphia, for example, 40% of the city’s households were cost-burdened in 2018, the last year for which data was available. The figure is in line with many other major U.S. cities, the group found.
A high poverty rate is a leading cause for renters. Of people earning $30,000 per year, 88% are cost-burdened, and 68% are severely cost-burdened, meaning they spend at least half of their income on housing.
Los Angeles and New York City have the largest percentages of cost-burdened households, according to data from The Chew Charitable Trusts in the chart below:
Cost burden rate for most populous cities
City | Cost burden rate |
Los Angeles | 52% |
New York | 46% |
San Diego | 44% |
Chicago | 41% |
Philadelphia | 40% |
Dallas | 39% |
Houston | 38% |
San Jose, CA | 38% |
San Antonio | 35% |
Phoenix | 34% |
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Figuring your income
To get to the 30% figure, make sure you’re using your gross income and not your take-home pay in the calculation.
Gross monthly income is the money you earn each month before taxes are subtracted from your employer. Other deductions may also be included to get to your take-home pay. These include paying for health insurance, a 401(k) retirement fund, and any other benefits that are removed from your salary.
Since you’ll be paying rent each month, you want to calculate your gross monthly income. Your gross income should be listed on your paystub. If you’re paid every two weeks, multiply your gross pay by 26 to get a 52-week gross pay amount, and then divide that number by 12 to get the monthly amount.
Housing costs are more than just rent
In coming up with the 30% of your income figure for housing expenses, be sure to include more than the monthly rent.
Renters should include utilities, insurance, and monthly service fees at their apartment or condo complex. Homebuyers should also add property taxes and mortgage payments. There are many more costs of owning a home, such as maintenance and down payment, that we won’t detail here.
Renters should also consider the price of a security deposit, which can often be a month’s rent or more.
Other expenses
Your annual salary pays for more than rent. You need money for living expenses beyond putting a roof over your head. Before figuring out if you meet the 30% rule of thumb for housing expenses and that new apartment you want to move into, here are some to think about.
If your costs are too high, you may want to either move to a cheaper apartment or cut some non-essentials from your budget. Or, in a best-case world, earn extra money.
Debts
We’ve mentioned a few forms of debt already: student loans and credit card debt. How much do these add up to for most people?
Recent college graduates have nearly $30,000 in student loans, according to U.S. News. Refinancing your student loans could lead to lower payments, or paying a little more each month can help eliminate this debt faster.
The average American has $6,194 in credit card debt. A debt consolidation loan or a 0% balance transfer credit card can lower the rate of paying off your loans faster and cheaper if you use the savings to pay off more of the principal due each month.
Savings
Saving money can be difficult when you’re scraping the rent together each month. But without some savings set aside, your financial situation could be direr immediately, such as through a job loss or in the future when you want to retire.
A traditional savings account is easy to open as a way to meet your financial goals. You can fund it through direct deposit and save for future expenses such as a new car, college, vacations, and other financial goals. You can also set up savings accounts for individual purposes, such as for college or vacations.
An emergency fund is a separate savings account that can help pay for life’s unexpected curveballs. These include losing your job and having enough money set aside to spend three to six months of expenses, major car repairs, home repairs, and significant medical bills.
One idea behind an emergency fund is having enough money to pay for your expenses without using credit cards or cutting essential living expenses such as groceries and utilities.
A retirement fund is another form of savings that shouldn’t be neglected so you can pay the rent.
Let’s assume you need about another $400 each month to afford the rent in an apartment complex where you really want to live. That’s $4,800 per year, but let’s round it up to $5,000.
As the New York Times explained in a story and graph, waiting 10 years to invest $5,000 in a retirement fund that earns 6% on investments cuts in half the amount saved when retiring at age 67.
The 32-year-old who invested $5,000 annually earns half of what the 22-year-old who invests the same amount 10 years earlier — $1,063,717 for the younger investor at age 67, and $557,173 for the person who waited 10 years to save for retirement.
That’s a lot of money to leave on the table, so you could afford to rent a luxury apartment with an extra $416 every month for a decade.
Insurance
You may not need life insurance at age 22, but if you have a car, you’ll need car insurance. Without it, you may not legally be able to drive.
Depending on your driving record, car insurance can easily cost $100 per month or $200 each month with certain insurers. It’s nice to have an extra $100 or so to spend on rent each month, but driving without car insurance can be much more expensive.
You may also want renters insurance. For about $15 per month, you can insure your belongings in your rental property.
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Living expenses
Some housing expenses are just the cost of living on your own and include essentials that you should budget for each month. These include apparent living expenses such as groceries, utilities like water and electricity, garbage pickup, transportation, clothing, and healthcare.
They’re items you can’t afford to cut out of your budget because they keep you safe and healthy. An internet connection is somewhere in the middle area between essential living expenses and non-essentials, though you should be able to live without it for a few months if you have to.
Clothes may also seem like non-essentials, and they can be if you’re buying clothes you don’t often wear and don’t really need. But you do need some clothes, and old shoes or underwear that wear out should be replaced, and working may require certain attire.
Non-essentials
This is all the fun stuff that can probably be cut out of your budget if you need more money to pay the rent. Non-essentials won’t keep you alive, but they make life a lot easier. Here are some costs you can trim from time to time to add money to your monthly budget:
- Dining out
- Movies, plays and other entertainment
- Alcohol
- Sporting events
- Vacations
- New phone or other electronics
- Pets
Costs
How much does an apartment cost?
The biggest factor in apartment rental prices is location. Move to a small city, and you’ll likely find rent lower than they are in a metro area.
On a national level, rent prices are up about 20% in the past year, according to the October 2021 Rent Report by the Apartment Guide:
- 1 bedroom: $1,660 monthly
- 2 bedroom: $1,964 monthly
If you really want to be shocked, here’s a chart from the report on cities with the highest rents in the country for one-bedroom apartments. Below is a chart for cities on the list with the lowest average rents.
Cities with the highest 1-bedroom rents
City, State | Rank by population | Population | 1-BR rent, Sept. 2021 | 1-BR: 1-year change |
New York, NY | 1 | 8,336,817 | $4,887 | 58% |
Boston, MA | 20 | 692,600 | $3,791 | 17% |
Irvine, CA | 65 | 287,401 | $3,610 | 46% |
Glendale, CA | 94 | 199,303 | $3,518 | 35% |
San Francisco, CA | 15 | 881,549 | $3,344 | 14% |
Oakland, CA | 42 | 433,031 | $3,328 | 3% |
Jersey City, NJ | 70 | 262,075 | $3,270 | 23% |
Long Beach, CA | 41 | 462,628 | $3,068 | 66% |
Santa Ana, CA | 52 | 332,318 | $3,047 | 44% |
San Diego, CA | 8 | 1,423,851 | $2,991 | 25% |
Cities with the lowest 1-bedroom rents
Rank by population | City, State | Population | 1-BR rent, Sept. 2021 | 1-BR: 1-year change |
Montgomery, AL | 97 | 198,525 | $587 | 5% |
Lubbock, TX | 73 | 258,862 | $642 | -5% |
Tulsa, OK | 44 | 401,190 | $655 | 2% |
Greensboro, NC | 61 | 296,710 | $729 | -13% |
Huntsville, AL | 90 | 200,574 | $765 | -26% |
Akron, OH | 100 | 197,597 | $774 | -1% |
Oklahoma City, OK | 24 | 655,057 | $779 | 11% |
Wichita, KS | 48 | 389,938 | $814 | 7% |
Toledo, OH | 67 | 272,799 | $865 | 7% |
Memphis, TN | 27 | 651,073 | $928 | -10% |
Ways to cut costs
If you have a budget, then you probably have a good idea of areas to cut back on to save money to help pay your rent costs. If not, becoming a renter is a good time to start a budget and figure out your monthly expenses.
Here are a few ways to cut housing costs.
Use 50/30/20 rule
Instead of limiting your monthly rent to 30% of your gross income, increase it to 50% and add monthly bills, groceries, and other essential expenses to this spending category. This gives you a better look at your essential costs.
The other parts of the 50/30/20 rule are:
- 30%: Non-essential purchases such as dining out.
- 20%: Savings
Cut debt
This is probably easier said than done, but cutting credit card debt and student loans, among other types of debt, can add a lot more money to your monthly budget. At the very least, try not to use your credit cards for a month.
Trim spending on non-essentials
Travel, dining out, and other non-essentials such as less entertaining are no fun to cut out of your budget so you can afford an apartment. Start by trying to trim them a little each month. Cook one extra meal at home each week instead of dining out and see how much money it saves you over a month.
Save on living expenses
Essential expenses can also be trimmed, or you can at least shop around for better deals.
Buy in bulk at Costco, get generic prescriptions, ride your bike to work, and shop at less expensive grocery stores and thrift stores.
Check with your cable TV, internet, phone, and other service providers for sales, and shop around at different companies to see what they offer. New customers often get discounts for the first year of signing up for a service.
Getting a roommate can help a lot to cut housing costs. Give yourself a year to try it out, and save your money during that time so you can afford to get your own place if you want to later.
Move
As we detailed earlier under costs, metropolitan areas are usually more expensive to rent in than other areas. Research how much rents are in surrounding cities and if the savings is taken away with higher commuting costs.
Pros and cons
Pros
- Knowing how much you should spend on rent, such as by following the rule of thumb of not paying more than 30% of your gross monthly income on rent, can help you shop for apartments that are within your price range.
- Figuring out how much you can afford for rent may lead you to start a budget and savings account.
- One of the best ways to have more money in your budget for rent is to pay off high, long-term debts such as student loans and credit card debt.
Cons
- Living in large cities is especially expensive, so you may want to get a roommate to share the cost, which can be a good and a bad thing.
- If you spend more than 30% of your gross income on rent, it can make affording necessities harder and force you to do without some things.
- All of this work may realize that you should move to a cheaper area with lower living expenses.
The bottom line
Looking for a place to rent can be a pain in the neck. But doing your research first and knowing how much you can afford can make it easier. Having a budget can point you to areas that are in your price range.
Also, consider your other expenses, both essential and non-essential, in deciding where you can afford to live. The cost of living is higher in some areas and should be a part of your rent calculation.
If you can’t find a safe and comfortable place in your desired area to live that requires 30% of your gross monthly income, then maybe you should look elsewhere or ask your boss for a raise.
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Writer
Aaron Crowe is a freelance journalist who specializes in personal finance writing and editing. He has worked at newspapers, where he won a Pulitzer Prize, and has written for numerous online publications. These include AOL, US News & World Report, WiseBread, Bankrate, AARP, and many websites focusing on housing, credit and insurance. He lives in California with his wife and daughter.
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