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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 March 4, 2019

How to Use Credit Cards While Staying Out of Debt

How to Use Credit Cards While Staying Out of Debt

Many people will suggest that the best thing to do with your credit cards during these tough economic times is to cut them up with a pair of scissors. Indeed, if you are already in huge debt, you probably should stop using them and begin a payback strategy immediately. However, if you are not currently in trouble with your credit cards, there are wise ways to use them.

I happen to really love my credit cards so I will share with you my approach to how I use mine without getting into deep financial trouble.

Ever since about 1983 when I got my first Visa card, I continue to charge as many of my purchases as possible on credit. Everything from gas, groceries and monthly payments for services like my cable and home security monitoring are charged on credit. Despite my heavy usage, I have maintained the joy of never paying any interest fees at all on any of my credit cards.

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Here are some tips on how best to use your credit cards without falling into the trap of paying those nasty double-digit interest fees.

Do Not Treat Credit Cards as Your Funding Sources

Too many people treat their credit cards as funding sources for major purchases. Do not do this if you want to stay out of trouble. I use my credit cards as convenient financial instruments so I do not have to carry around much cash. In fact, I hate carrying cash, especially coins. When you buy things on credit, the purchases are clean and you will not get annoying coins back as change.

I do not rely on my Visa, MasterCard or American Express to fund any of my purchases, large or small. This brings me to my golden rule when it comes to whether I will pull out any of my credit cards either at a retail or online store.

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I never purchase anything with my credit cards if I do not have the actual cash on hand in my bank account.

If I really cannot pay for the item or service with cash that I already have at the bank, then I simply will not make the purchase. Remember, my credit cards are not used as funding sources. They are just convenient alternatives to actual cash in my pocket.

Make Sure to Always Pay Off Balances in Full Each Month

The next very important part of my overall strategy is to make absolutely sure that I pay the balances in full each and every month no matter how large they are. This should never be a problem if the cash has been budgeted for my purchases and secured in the bank. I have always paid my full balances each month ever since my very first credit card and this is why I never pay interest charges.

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Using Credit Cards with Rewards

Most of my credit cards are of the “no annual fees” type, including one MasterCard on a separate account I keep at home as a spare in case I lose my wallet or incur any fraudulent charges. However, I do use a main Visa card which does have an annual fee because all purchases on that card reward me with airline frequent flyer points. For me, the annual fee is worth it since I do travel and I get enough points to redeem many free flights.

You have to decide for yourself if you will charge enough purchases on credit each year without paying interest charges to warrant a credit card that rewards you with airline points (or other rewards). In my case, the answer is “yes” but that might not be the case for you.

I occasionally use a MasterCard or American Express card on small purchases just to keep those accounts active. Also, I have been to the odd retailer that accepted only a certain type of credit card, so I find that having one from each major company is quite handy. Aside from my main Visa card which earns the airline points, the rest of my cards are of the “no annual fees” variety.

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So this is how I use my credit cards without getting into any financial trouble with them. This strategy is recommended only if you are not in debt, of course. In fact, it is worth keeping in mind once you’re out of debt so that you can keep your credit cards active and treat them responsibly.

What are your credit card usage strategies? Let me know in the comments — I’d love to hear what methods you use.

Featured photo credit: Artem Bali via unsplash.com

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