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Published on July 3, 2018

How Much Should I Spend on Rent? Find Your Answer Here

How Much Should I Spend on Rent? Find Your Answer Here

Renting is a great option for individuals unable to build or purchase a home of their own. Your job could take you places and you’d need convenient and affordable rented accommodation to manage your life.

How much should you spend on rent? Keep in mind that the rent amount varies considerably from one location to the next. So, avoid renting a house that blows a fat chunk out of your monthly paycheck. This is easier said than done, considering how the rent is increasing quicker than incomes in many cities.

However, it’s never too late to bring your finances under control. Never pay too much rent; instead, move into affordable accommodations. Asking the following questions before signing the lease can positively impact your budget:

What amount of home rent can I afford?

Consider your present economic situation as well as your income before settling on the amount to set aside for rent every month.

Thus, when looking for a new place, check your budget to see what expenditures you’re already handling, such as food, insurance and transportation. Pick a location that enables you to reside comfortably, while leaving a sufficient amount left over for paying off loans.

Be aware of the location of the apartment as it will decide the rent you must afford. For example, apartments situated in high-cost rental markets are worth getting a roommate. Even if you are not a big fan of sharing your living space, rooming with another person can save you hundreds, and in some cases, thousands.

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In fact, it might not be a wise decision to rent a place on your own. Landlords in certain areas desire tenants whose annual income is minimum 40 times greater than the monthly rental fee. What this means is, to get a $2,500 apartment, you will have to earn at least $100,000 before taxes.

However, having a roommate lets your split the cost while a guarantor can pay the rent on your behalf if you risk defaulting on your payment.

It might be a good idea to crunch numbers prior to viewing potential housing units. After all, your rent budget will depend on the monetary amount you’re paid after deducting taxes. Simply checking your annual salary before meeting a landlord or a broker might land you in hot water later.

Make sure you take moving costs into account, along with furniture-related expenses. A secret stash for emergency situations might also be a good idea.

What is the 30 percent threshold?

Now, it is true that every person has unique social, personal and financial circumstances. Despite all this, don’t exceed 30 percent of your household income when it comes to rent and utilities.

For that reason, rent a house that costs way below 30 percent of your gross monthly income. So, a person earning $3,000 each month, should keep aside no more than $900 when it comes to housing-related expenses.

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You might be wondering what’s so special about 30 percent. Well, you’ll be surprised to know that this is the percentage used by the government to decide who is qualified to enjoy public housing initiatives and programs since the year 1981.

Statistically, households spending over 30 percent on housing expenses become cost-burdened. Those shelling out 50 percent or more of their salary on housing costs are deemed severely cost-burdened.

A 2015 report from the Harvard Joint Center for Housing Studies found that 21.3 million cost-burdened renters exist as of 2014. So, nearly half of all these people are exceeding their rent capacity.

However, given that so much time has passed since 30 percent became the standard measure of housing affordability, many question the validity of this number. Critics claim it overlooks the variations in household size and cost of living.

Single individuals without dependents might not have an issue paying 30 percent of their monthly income on housing, but a person supporting a family of four might not have sufficient money to get by.

At the same time, a family might think it is worthwhile to spend the 30 percent on rent costs if it means getting closer to better public transportation or better educational institutions.

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Can I go for the 50/30/20 budget?

If you’re undecided on the rent amount, try the 50/30/20 method.

According to this guideline, renters can spend 50 percent of their take-home pay on monthly essentials like utilities, groceries, transportation, and so on.

Then 30 percent of their after-tax money should be used for non-essentials like entertainment. This 30% should also absorb expenses related to important purchases that make your lifestyle better and more fulfilling.

Right from experiential purchases such as a vacation to the Caribbean islands or a wine workshop, to health and beauty products– everything should fit in to this budget. Considering how we’re in a price sensitive economy, this is easily achievable. The trick is to look for specialized retailers that can fulfil your lifestyle product and service requirements at affordable prices.

So, puzzled whether to bring home cool products? Make some space in this 30%.

The remaining 20 percent would then go towards paying off loans, retirement savings and other financial targets. If you can plan the other two portions better and keep on adding to this 20% segment, you’ll be better off by clearing your liabilities sooner than planned.

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Of course, the 50/30/20 budget isn’t a one-for-all deal. For example, individuals on the cusp of retirement and without any substantial savings might have to cut back on their spending and spend more than 20 percent of their income on retirement accounts.

The big takeaway

In short: the amount to spend on rent is not set in stone; it is variable.

Of course, the above-mentioned models give you a good idea about the percentage of income you should allot for housing.

But when all’s said and done, you need to take a closer look at the budget in hand and consider the goals who wish to fulfill before taking the final call on the rent amount you can afford.

Renting an apartment is all about knowing what’s best for you and exploring the available options. The housing market is booming in various parts of the world, and you need to pick the opportune moment to secure the best rental amount.

But whatever you do, make sure you do not overspend. After all, whether you’re single or a family man/woman, you have other needs that must be met, and those cost a lot.

So, plan carefully and find a worthwhile apartment that not only costs a reasonable sum each month but gives you a chance to increase your long-term savings.

Featured photo credit: Pexels via pexels.com

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Robin Williams

Business Professional, Writer and Blogger

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Last Updated on January 2, 2019

How Personal Finance Software Helps You Get More Out of Your Money

How Personal Finance Software Helps You Get More Out of Your Money

Do you know what mental health experts point to as the biggest cause of stress in the United States today? If you said “money,” then ding, ding, we have a winner!

Three out of four adults today report feeling stressed out about money at least part of the time. People are either worried about not having enough money or whether they’re putting the money they do have to use in the best possible way.

Your money is either in charge of you or you’re in charge of it, there’s no middle ground. Using some type of personal finance software can help alleviate some of that money stress and better allow you to manage your money effectively. Without it, you may just be setting yourself up for constant financial worry. Life is already tough enough and there’s no need to make it more difficult by simply hoping your money issues will all work out in your favor. Hint: they won’t.

This guide will help you to understand how personal finance software can better assist with both accomplishing long term financial goals and managing day-to-day aspects of life.

Whether it’s tracking the savings plan for your child’s college fund or making sure you won’t be in the red with the month’s grocery budget, personal finance software keeps all this information in one convenient place.

What Exactly is Personal Finance Software?

Think of it like the dashboard in your car. You have a speedometer to tell you how fast you’re going, an odometer to tell you how far you’ve traveled, and then other gauges to tell you things like how much gas is in the tank and your engine temperature. Personal finance software is essentially the same thing for your money.

When you install this software on your computer, tablet, or smartphone, it helps to track your money — how much is going in, how much is going out, and its growth. Most personal finance software programs will display your budget, spending, investments, bills, savings accounts, and even retirement plans, levels of debt, and credit score.

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How It Leads to Financial Improvement

It shouldn’t come as a surprise, but people who regularly monitor their finances end up wealthier than those who don’t. When you were a kid, keeping track of all of your money in a porcelain piggy bank was pretty easy. As we get older, though, our money becomes spread out across things like car payments, mortgages, retirement funds, taxes, and other investments and debts. All of these things make keeping track of our money a lot more complicated.

Some types of personal finance software can help make things a little less complicated, setting you up to meet financial goals and taking away some of the stress associated with money.

Even if you already have a Certified Financial Planner (CFP) some type of personal finance software can be of great benefit. Whereas CFPs focus on the big picture of your money, they don’t handle the day-to-day aspects that determine your overall financial health.

It’s also not nearly as complicated as you might think and can take out a lot of the tedium that comes with doing everything on an Excel spreadsheet or with a pad and pencil.

Types of Personal Finance Software

When it comes to personal finance software, it generally fits into two categories: tax preparation and money management.

Tax preparation software such as Turbo Tax and H&R Block’s software can help with everything from filing income taxes to IRS rules and regulations and even estate plans. Plus, there’s the benefit of filing online and getting your refund check a lot faster than if you were to mail off your forms after waiting in line at the post office.

For the purpose of this article, however, will be focusing more on the personal finance software that aids with money management.

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Money management personal finance software will help you to see the health of your cash flow, pay down debt, forecast for expenses and savings, track investments, pay bills, and do a host of other things that 30 years ago would have practically required a team of accountants.

When to Use Personal Finance Software

So far we’ve gone over what exactly personal finance software is and how it can be a benefit to your money. The next logical step in this whole equation is determining when it should be used and how is the best way to go about getting started using it.

Below are four of the most common and practical ways to use personal finance software. If all or any of these apply to you and your money, then downloading some type of personal finance software is going to be a smart move.

1. You Have Multiple Accounts

There’s a good chance that when it comes to your money, it’s in more than one place. Sure, you probably have a checking account, but you may also have a savings account, money market account, and retirement accounts such as an IRA or 401k.

If you’re like the average American, you probably have two to three credit cards as well. Fifty percent of Americans also don’t have loyalty to just one bank and spread their money across multiple banks.

Rather than spending hours typing in every detail of every account you have into a spreadsheet, many programs allow you to easily import your account information. This will help to eliminate any mistakes and give you a bird’s eye view of everything at once.

2. You Want to Automate Some or All of Your Payments

Please don’t say that you’re still writing out paper checks and dropping each bill in the mailbox. While it’s noble that you’re doing your part to keep postal workers employed, we’re 18 years into the 21st century and you can literally pay every bill online now.

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There’s no need to log into every account you have and type in your routing number either.

With personal finance software you can schedule automatic payments and transfers between all of your imported accounts. Automatic transfers will help to make sure you have the necessary funds in the right account to ensure all bills are paid on the appropriate date. Late fees are annoying and do nothing but cost you money. It’s time that you said goodbye to them once and for all.

3. You Need to Streamline Your Budget

Perhaps the best feature of personal finance software is that it allows you track everything going in and out of your virtual wallet.

Nearly every brand of personal finance software out there has easy-to-read graphs and charts that allow you track every cent you spend or earn, should you choose. You might be pretty amazed when you see just how much you spent on eating out last month or if you splurged a little more than you should have on Christmas gifts last year.

Every successful business on the planet has a budget and using personal finance software can help you trim the fat on your spending in ways that affect your everyday life.

4. You Have Specific Goals to Meet

Maybe it’s paying off debt or saving for up something like a European vacation. Whatever your financial goal is, whether it’s long-term or short-term, personal finance software programs are one of the savviest ways to go about reaching those goals.

You can do everything from set spending alerts to notify you when you’re over budget to automating what percentage of your paycheck goes to things like retirement investments. The personal finance software that you choose should show you exactly how close you are to hitting those goals at any given time.

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How to Get Started

From AceMoney to Mint and Quicken, there ’s no shortage of personal finance software apps out there. Many of these programs are free to download and will allow you to pay bills, invest, monitor your net worth and credit profile, and even get a loan with the swipe of a finger.

Other programs may only offer you limited services and will require a one-time fee or subscription to unlock all that they offer. These fees can often vary from as little as two dollars to 50 bucks a month.

It’s best to start off with the free version and then gauge whether you’re able to accomplish everything you’d like or if it’s worth exploring one of the paid options. Often times the subscription programs come with assistance from financial planning and investment experts — so that can be a real benefit.

When deciding which personal finance software program to use, it’s also important to look at how many accounts you wish to monitor. Certain programs limit the number of accounts you can add. Be sure that if you have checking, credit card, and investment accounts to monitor, that you choose a service that can monitor them all.

Finally, when looking around for the right personal finance software that meets your needs, make sure that you’re comfortable with the program’s interface. It shouldn’t be expected that you recognize every single feature instantly, but if the features don’t seem readable and manageable to you, then you’re not as likely to use it and get the full benefits.

Final Thoughts

Personal finance software can go a long way in helping you to take control of your money and meeting your financial goals. It’s important to note, however, that some focus more on budgeting and expense tracking while others prioritize investing portfolios and income taxes. Explore several different programs and read reviews to find the one that’s right for you.

In this day and age, managing one’s personal finances in a secure manner that allows the user to have a real-time visual representation of their money is easier than ever before. With the numerous applications that are out there — both free and subscription-based — there’s no reason that every person can’t take control of their money and ensure they’re making smart money moves.

Featured photo credit: rawpixel via unsplash.com

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