In the midst of unpredictable real estate prices and high-interest rates, many people are choosing to rent instead of buying homes. However, that poses the question–how much should you spend on rent? If you’re trying to save money by renting instead of purchasing real estate, you’ll want to ensure you’re actually getting a deal. So, today we’ll go over how much you should spend on rent each month and how to budget and save money.
Contents of This Article:
- How Much Should You Spend on Rent?
- What Is the 50/30/20 Rule?
- How to Save Money Each Month
- Find a Rental That Fits Your Budget Today
How Much Should You Spend on Rent?
One of the most significant monthly expenses to budget for is your rent payment. Whether living with a roommate or working directly with property management in Baltimore, you never want to miss a rent payment. As such, knowing how much you should spend on rent and what you can afford is crucial.
When it comes to how much you should spend on rent, it ultimately depends on your income. For instance, those with a higher income can afford to pay more for rent than those with a lower income. Generally, a good rule of thumb is to spend no more than 30% of your income on rent each month.
Say, for example, you take home $3,500 monthly after taxes. In that case, you can spend up to $1,050 on monthly rent. That way, you can cover your most important expense–rent–and have enough left over for other expenses or savings. However, if you have other major payments, like a car payment or other necessary expenses, you may want to adjust your budget as necessary.
Creating a budget incorporating rent, utilities, and other expenses can be tricky, especially if you’re moving into your first apartment. However, it’s a necessary part of life for both renters and homeowners, whether you’re paying a mortgage or monthly rent. So next, let’s review how to budget for rent each month.
Budgeting for Rent Each Month
An excellent budgeting strategy will first cover necessary expenses, with money left over for other wants, needs, and savings. One way to keep track of your income and expenses is with a budget tracker. After all, it’s easy to forget about how much you spend on a daily basis. For instance, some of the most common expenses that people generally have include:
- Cell Phone
- Credit Card
- Household Items
- Student Loans
As you can see, there’s a lot to budget for, and it’s essential to consider all your expenses when budgeting for rent. After all, you don’t want to be stuck in a scenario where you can’t cover your basic expenses due to wrongful budgeting. So, let’s go over a helpful strategy–the 50/30/20 Rule.
What Is the 50/30/20 Rule?
If you’re new to budgeting, it can seem quite daunting. Not only do you need to determine all of your expenses, but you might have to make difficult decisions about how to spend your money. For instance, if you’re moving into your first rental or a more expensive home, you must adjust your budget to accommodate that large monthly payment.
One method that simplifies budgeting is the 50/30/20 rule, which includes dividing your income into three categories–necessities, wants, and savings.
50% for Necessities
As a general rule of thumb, around half of your monthly income should go to necessary expenses. These expenses include rent (or mortgage), utilities, car payments, loans, groceries, insurance, and health care. So, if you consider spending 30% of your income on rent, you’ll have 20% left over for other necessary expenses.
If you’re unsure what could be a “necessity”, think about what you need for survival. For instance, things like cable, clothing, and restaurant outings aren’t necessary, so they’d go into the “wants” category.
30% for Wants
If you budget correctly, you don’t have to spend all your income on necessary expenses. For instance, a good rule is saving 30% of your income for optional expenses or “wants.” Anything from clothes shopping, drive-through coffee, traveling, or a gym membership qualifies as a want. While they may seem like necessary expenses to you or your lifestyle, they’re entirely optional.
20% for Savings
Finally, the remaining 20% of your income should go toward your savings. Unfortunately, most people don’t have enough savings to cover unexpected or emergency expenses. However, there are plenty of ways to save money and keep it out of your hands so you don’t spend it. For instance, you can open a deposit account to account for emergencies, down payments, or vacations. Or, you can contribute to a 401(k) or IRA.
If you find saving money difficult, consider setting up direct deposit, so a portion of your paycheck goes directly to your savings account. Or, you could explore other money-saving methods, like a round-up program that rounds your transactions to the nearest dollar and transfers the difference to your savings account.
How to Save Money Each Month
Saving and budgeting for necessary expenses and wants is tricky. After all, rent can get expensive; unfortunately, many people spend more than 50% of their income on necessary expenses. However, if you know how to save money, it’s easier to reduce expenses and contribute more toward savings.
- Choose Your Location Wisely- Rent differs depending on where you live. For instance, if you’re looking at rentals in New York City or Los Angeles, you’ll come across higher prices than you would in smaller, more rural areas.
- Reduce Unnecessary Spending- If you have difficulty budgeting for important expenses, perhaps you need to adjust your spending habits. For instance, you don’t want to sacrifice your rent payment for vacations or clothes shopping. As such, consider cutting unnecessary costs and saving more for rent and other bills.
- Save on Energy Consumption- If you spend a lot on utilities, you may want to adjust some of your habits. For instance, you can cut water costs by taking shorter showers or turning the water off when brushing your teeth. Additionally, unplugging electronics when you’re not using them can help save a significant amount of electricity.
Find a Rental That Fits Your Budget Today
Now that we’ve reviewed how much you should spend on rent, it’s easier to develop a budget and saving strategy that fits your goals. Remember, it’s important to ensure you can cover your rent each month with enough left over for other needs and wants.
If you’re looking for a new rental home that fits your budget, look no further than Bay Property Management Group. Our up-to-date listings include all kinds of rentals, whether you’re looking for a small apartment or a large single-family home.
On the other hand, if you’re a rental owner looking for someone to manage your properties, we excel in comprehensive rental management. So whether you need help marketing, collecting rent, or screening tenants, we’ve got you covered. Contact BMG to learn more about how we can help your business succeed today.