How Much to Budget for Rent

Many people will tell you that you should never spend more than 35 percent of your income on rent. However, depending on your own financial situation, that income ratio may not always be correct.

Jerrold Mundis, a financial therapist and the author of the bestselling book “How to Get Out of Debt, Stay Out of Debt, and Live Prosperously,” suggests that you need to have a good understanding of your own finances before simply assuming that a general ratio will work for you. Mundis states that “…renters need to have a clear grasp of how much money they bring in each month and how much goes out, and to where — and thus to be able to make a reasonable estimate of how much they can afford for rent.”

Your income and expenses may not match up with what’s considered average. Maybe you have a high expense in an area other than housing that has to be a priority for you. Maybe you’re trying to increase your savings for a long-term goal, like buying a house. These situations could lead you to look for a less-expensive apartment. On the other hand, if you have minimal expenses in other areas and having a certain type of apartment is a priority for you, you might be able to afford a more expensive place.

Factors like location can be important in finding an apartment that meets your budget. If you’re living in a metro area, you’ll be facing higher rent no matter what your budget says. Many landlords are also tightening income restrictions due to the current economic situation. Keep these issues in mind when hunting for an apartment that will fit comfortably into your budget, as well as when you consider options to cut expenses, such as finding a roommate.

When you’re searching for a new apartment, your rent-to-income ratio is crucial for more than just making a budget. It’s just as important in convincing a landlord to rent to you. If a prospective landlord is at all worried that you won’t be able to pay your rent in full and on time every month, he’ll turn you down and look for another tenant. A landlord may look for a certain rent-to-income ratio or just look for an acceptable income. In some cases, a landlord may expect your rent to be an even lower percentage of your income. If you don’t meet this number with your day job, he’ll probably assume that you don’t make it at all. It’s up to you to demonstrate any other income you might earn, such as freelancing on the side or working a second job, either with a pay stub or a tax return showing proof.