How Much Should You *Really* Spend On Rent? (And Other Budget Questions)
There's no right answer, but these methods can help you gain better perspective.
Conventional wisdom says your rent should figure in right around 25 percent of your monthly take-home pay a.k.a. “gross income." But considering the bonkers rent prices much of the US is subjected to, the notion that you can pay a reasonable amount of rent in areas like New York City or San Francisco is laughable for many.
And even if you’re not in a super high-rent market, living life and putting food in your mouth every day is expensive—especially considering the burden of student loans is way scarier than it used to be back in the day.
So what’s a gal to do when it comes to deciding how much to fork over for a room of one’s own?
When it comes to budgeting, there’s no use in subscribing to strict, outdated rules that have little to no relevance today; it’ll only set you up for failure. Which in turn will inspire guilt and shame, which in turn can scare you away from the prospect of budgeting altogether.
Here’s the thing to keep in mind: Budgeting is highly personal. It requires honesty and commitment, but it’s entirely up to you how you prioritize your spending while planning for what’s ahead.
That said, there is a method floating around that can provide structure without being impossibly restrictive: It’s called the 50/20/30 budgeting method, and it just so happens be the formula of choice of a certain bankruptcy expert and United States senator by the name of Elizabeth Warren.
Here’s the gist:
- 50 percent of your gross income should go to your “needs.” This includes groceries, transportation, insurance, minimum loan payments, other costs absolutely necessary to your work (such as childcare, if you have kids). It also includes rent—ta da! It's a balancing act, however; if your rent is disproportionately high, you may need to skimp a little in the "wants" piece of the pie, which we'll get to in a minute.
- The 20 percent section goes towards savings and debt repayment. This counts as any credit card payments above your minimums (which are part of your "needs" section,) as well as stuff like a 401K or investments.
- The final 30 percent is the fun part—your "wants." File away all your prospective entertainment, shopping, vacation and wine costs here, and keep in mind that this is likely the section that will need to get tightened up if you're spending a pretty penny on rent.
To save yourself the maths effort, check out this handy calculator from NerdWallet where you can figure out how much needs to go to what, and take it from there.
Lastly, one more reminder that budgeting and finance is extremely personal. It might seem tedious on the surface, but it can bring up all sorts of emotions, and finding the best method for you is essential, whether that's keeping track of it in an app, using another system like the Urgent/Important Spending Matrix, or applying the ballpark 50/20/30 method. Either way, becoming the master of your money situation is possible.
Words: Deena Drewis
Photo: Daria Kobayashi Ritch