How Much of Your Income Should Go to Rent?

Figuring out how much you can afford to spend on rent depends on your financial situation. Some commonly used budgeting models suggest parameters for how much of your income you can allocate for housing and still be able to cover other recurring expenses consistently. Your location, expenses, savings goals, and income will determine a suitable rent-to-income ratio that can work for your circumstances.

Two rent-to-income models

There are two popular rent-to-income models a renter can use when determining how much of their income should go to rent costs. The first is the 30% rule. The second is the 50/30/20 budget method. Let's look at both to help determine how much of your monthly income you can pay in rent. 

The 30% rule

While the costs of living have increased with each passing decade, many landlords and property managers' income requirements have stayed the same. This has made it very difficult to afford housing in many metropolitan areas throughout the United States. In the 1960s, an average family could expect to allocate 25% of their income to rent. By the 1980s, housing costs increased, raising the standard budget for housing to 30% in most areas of the country. 

Many landlords and property managers still use the 30% rule in their tenant screening. For example, a landlord will screen to see if an applicant's income covers roughly 30% of the housing cost. This helps them decide whether an applicant earns enough to afford the rental rate at their properties. However, even though it may not apply to your situation if you live in a high-cost-of-living area, it is a useful measurement when estimating a realistic budget for rent. After all, who wants to make their rent payment and have no money left over to enjoy a night out with friends? No one. 

What landlords consider with the 30% rule 

Landlords using this rule look at your gross income before taxes, insurance, or 401k contributions are taken out of your check. They typically like to see a gross income amount that is at least 3x the monthly rent payment to leave you with 70% of your income to pay for all of your other expenses, including car payments, student loans, and other debts, and still allow you to save money. 

Here is an example of how the 30% rule works. 

Let's say you earn $36,000 a year, which breaks down to $3,000 a month. Your landlord would see your gross pay of $3,000 a month and assume you can pay $900 a month in rent. 

$3,000 x 30% = $900

The example above of a rental rate might be available in a town in the Midwest, but in San Francisco, Los Angeles, or New York City, you'd be hard-pressed to find a place for $900 a month in the city. In an expensive metropolitan area, the 30% rule doesn't help you. However, the 50/20/30 budgeting method may give you a better idea of how much of your income you can afford to pay for rent and other fixed expenses. 

The 50/30/20 budget method

With this budget method, you can better understand your expenses, monthly income, and savings and how you can meet the income requirements for renting an apartment. 

This method assumes that 50% of your take-home income (after taxes) is available to pay for your fixed and necessary expenses—rent, groceries, car payments or transportation, student loans, minimum debt payments, and utilities. 

The next 30% accounts for non-essentials like dining out, entertainment, shopping, gym memberships, subscriptions, and other lifestyle expenses. 

The remaining 20% can be earmarked for savings or paying down debt. 

Here's what 50/30/20 looks like with our $36,000 annual income or $3,000 per month example.

50% ($1,500) goes to pay rent and other fixed expenses like student loans and utilities.

30% ($900) pays for wants such as dining out. 

20% ($600) goes to savings and paying off more debt.

How to adjust your budget to afford rent

Work with your employer: If the ratio of your fixed expenses (including rent) to your salary exceeds 50% of your income, you may be able to reduce your 401K contribution until you have earned a raise. Let your employer know you're eager to take on more responsibility to earn a raise. If your employer allows staff to work remotely, ask to be considered for a remote role. This can help you cut transportation costs like fuel, bus or train passes, and parking. Even if you need to commute for a monthly meeting, you may be able to live in the suburbs where rent is less expensive.

Work a side gig: Many people work a side gig on the weekends to supplement income from a full-time career. This could be online or a part-time job you enjoy in your area, like landscaping for neighbors, walking dogs or house sitting. 

Consider a roommate: While cohabiting with a roommate can be complicated, in areas where even one-bedroom apartments are more than $1,500 per month, you may need to find a roommate to split the rent with you. Any roommate on the lease will need to meet the landlord's income requirements for their share of the rent. 

Cook at home: Dining out a few times a week can be an expensive habit and one that quickly eats into your budget. Consider cooking at home once a week; to keep in contact with your friends, invite them over for a home-cooked meal, or consider having everyone bring a dish to share. This can minimize your expenses and keep your social life busy. 

Use public transportation: Parking can be a considerable expense in bigger cities. Consider whether or not you need to own a car right now or if you can get around on public transportation to minimize costs. 

Lower your expectations: Living in an apartment can be a great step toward independence, but it comes with the responsibility of paying all your bills. Consider renting in a less-expensive area to give yourself more wiggle room for having fun. If rents in the area where you want to live will max or exceed the appropriate rent-to-income ratio, you could find yourself with no money left to enjoy life. 

Cut back on your expenses: 

• Lower your costs for essential utilities: You need the basics of water, heat, and electricity, but cable TV may be a luxury you can do without. A digital antenna could provide access to local channels, or you could sign up for a less-expensive streaming service. 
• Reduce your car insurance bill: If you have to own a car, be sure to shop around and compare car insurance rates. You could be missing out on a better deal if you default to the family insurance provider without comparison shopping for a more affordable premium. 
• Get smart with your groceries: Meal planning, in-store coupons, and discount stores can help you stretch your budget. 
• Use an online tool to apply for renters insurance: There are online tools that landlords and property managers use to estimate rent and allow you to apply online. Renters have access to these same tools to help them reduce application fees and acquire renters insurance that fits their needs. 
  

As you look for an affordable apartment, start by looking at your income and budget—when you know how much of your income should go to rent, you're halfway there.