Should You Follow the 30 Percent Rule?

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While you will want to set an appropriate budget when finding accommodation to rent, you don’t need to feel like you have to follow set rules. If you’re wondering “how much rent can I pay?” This guide to the 30% rule for renting a home will help you determine how to calculate your rental budget.

What is the 30% rule?

If you are looking for accommodation to rent, you may have heard someone suggest that you follow the “30% rule” when looking for an apartment within your budget. This common suggestion simply means that you shouldn’t be spending more than 30% of your gross income (before tax) on your rent.

First introduced by the government as part of the public housing regulations capping the rent of social housing at 25% in the 1960s and then at 30% in the 1980s, this rule has maintained its popularity with tenants. The persistence of the rule has a simple explanation: Often, rent is the biggest expense of any individual or family. If you stick to spending 30% or less on rent, you will be left with money for bills, debt or savings.

Example of 30% rule

Let’s say you earn $ 30,000 per year during your freshman year in college. If you plan to follow the 30% rule, you can calculate your housing allowance by first multiplying this annual income by 30%. This calculation earns you $ 9,000.

Now divide $ 9,000 by 12 (number of months in a year). This gives you $ 750 for monthly rent. Under the 30% rule for housing, you shouldn’t spend more than this amount on your rent. Before taxes, you will then have $ 1,750 to use for expenses such as food, utilities, your car, any credit card or student loan debt, medical bills, and all other expenses each month.

Does the 30% rule make sense today?

While it provides a useful starting point if you need some rules for yourself when starting your apartment search, the 30% rule doesn’t work for everyone. For example, people did not contribute to 401 (k) plans or had high student debt when the government incorporated this percentage into social housing guidelines in the 1980s.

The rule may also not work for tenants living in expensive markets, like New York or San Francisco. You know you’ll have to shell out a bit more cash for a great place to live if you’re looking for one of the more expensive places in the country. Setting different guidelines at the start of an apartment search can help you stay within your budget while avoiding sticking to the 30% rule.

When it’s worth breaking the rules

No matter where you live, you shouldn’t feel 100% obligated to stick to the 30% rule. Sometimes you will even end up saving yourself money in the long run when you break this particular rule.

For example, you can pay a little more rent to live near your workplace. It can save you a ton on travel costs if you can walk or cycle to work regularly.

You should also consider the perks and amenities of a given apartment if you plan to splurge on rental costs. Perhaps you will have a fitness center directly in your building that will allow you to cancel your gym membership or a garage that will reduce your parking costs.

The additional upfront costs may balance out when you factor in the total savings. In some cases, you may ultimately save more money than if you had adhered to the hard 30% rental rule. Looking at the big picture will let you see when it’s worth being a rule breaker in this case.

Alternatives to the 30% rule

Of course, you don’t have to dismiss budget considerations entirely when looking for the apartment of your dreams! You’ll want to create a system that keeps you on track with all of your necessary expenses, while still getting a place to live that you love.

  • 50/20/30 Rule: Instead of just considering the 30% you could spend on rental costs, the 50/20/30 rule suggests that 50% of your income is for necessities, 30% for things you want, and 20% for reimbursement. debt and / or building your savings. With necessities defined as things like food and rent, you will have a little more flexibility when looking for apartments.
  • Make a budget: Everyone has different needs, wants and priorities. Think about who you are, then take the time to create a budget that takes those items into account to determine how much you can realistically afford to spend on rent each month.

Start by calculating your last three months of spending – discretionary fees included. Calculating your recent spending will help you determine where your money is going each month. You may find that you are overspending in some discretionary areas (think Ubers or food delivery). Once you know where you can cut costs, do it accordingly. This in turn can free up additional money to invest in the rent.

30 percent? It’s yours!

In the end, any rule is always more of a guideline. Your personal goals and financial situation should dictate your decisions. If the apartment you want comes with a monthly rent that’s just over 30% of your annual income, there might be a few places you can cut back on other costs to free up money for rent. .

On the flip side, if you have constant expenses like student loan debt or car payments, or set big savings goals for yourself, you might want to take a closer look at how much you can afford. invest in your rent each month. You can also consider moving in with a significant other or even a roommate to reduce individual rental costs.

When it comes to finding the right place, the 30% rule can offer a first step in budgeting. Keep this in mind while you search for your next apartment on Zumper and you will narrow your search down to apartments that you can afford.

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