Hello Lovelies and thank you for coming back to my blog! For today’s post, I want to go over how not to become house poor and discuss rent affordability. If you haven’t started your monthly budget yet, be sure to check out this post. It will help you figure out how much money you have after your expenses, which will help determine how much you can afford in rent. This post, of course, comes with a handy dandy template that you all know I love so much. You can get the template by subscribing to my super helpful blog! If you opted out of subscribing, but change your mind you can refresh the page and it will appear again like magic!
How Much Rent Can I afford?
Experts say you should spend no more than 40% of your gross income on rent a month. I have always thought this was kind of strange because you don’t have all of your gross income every month, but one of the reasons they say this is because landlords use your gross profit as a qualification. When I calculate rent affordability per month, I use 40% of my take-home pay as my maximum. For example, if I find the perfect apartment in the ideal location, with excellent amenities. Realistically I shoot for about 30% of my take-home pay. If you are searching for a place with a significant other, then you would take 30% of both of your take-home pay together.
Your Monthly Budget
After figuring out the 30%-40% of your yearly or monthly income you need to factor in all of your other expenses. From my budget article we learned to include at least these items:
- Car Payment
- Insurance- Every kind you have.
- Gas- As in a car, not water heater gas.
- Credit Card Bills- Every Card should be separate.
- Student Loans
- Phone bill
If you need a refresher course on how to start a budget head on over to the post by clicking here. You may be able to afford $2,000.00 in rent when you calculate 30% of your income, but when you include all of the items above that may put you at a deficit or negative amount. Be sure to cover your monthly expenses when considering rent affordability. For example, on paper, I can afford $2,600.00 a month on rent, but once I think of my other costs I only have the money for half of that, but I include savings and investing as a considerable portion of my budget.
I know this can be overwhelming, but don’t worry. I have broken up the steps to finical freedom one post at a time. Everything in this blog works upon itself. You start with building a monthly budget, and every other post is more comfortable once you have that created. Once you understand how much money you have to work with finding the amount you can afford for a place is much simpler. Subtract your expenses, and you have the money left over for miscellaneous expenses like dining out, entertainment, and your rental budget.
Should I Consider Any Other Costs?
Short answer: YES! Many people forget to add utilities, parking, cable, or pet fees. For you to understand rent affordability, you also need to know what other things you may have to pay. When viewing apartments make sure to ask the leasing agent or building manager what the utilities roughly cost for your kind of unit. Also find out about all pet fee’s, which some apartments charge per month and pet deposits before you even make a decision or sign on the dotted line. Please ask about parking. Parking may not be a massive problem in many states, but in Los Angeles, parking rates can destroy your budget.
In Koreatown, I found the most beautiful apartment that was already at the top end of my budget. I had already moved in, in my mind, until I asked about parking. It was $400.00 a month! Just for parking and one car! It was insane. It is safe to say we did not end up moving there. Once you find out about all of the extra costs affiliated with the monthly cost add it to the price of the rent. Can you afford it now? If not, you just saved your self so much stress and pain in the future.
Your Lifestyle and Rent Affordability
Another essential piece to rent affordability, which this may be weird, but your lifestyle. Stay with me on this. I promise I will make sense. Let’s say you find a super affordable apartment and it looks fantastic. It has granite counter tops, stainless steel appliances, top floor, and no shared walls. Are you ready for the but? BUT, it’s an hour and a half away from your work on a good day. With traffic, this perfect apartment could be two and a half hours away. That means you are commuting five hours a day, which adds up to about 54 days per year. Fifty-four days of your life per year you are in a car. It makes a lot more sense to spend the extra $100.00 to $300.00 to be closer. You’ll save on gas, insurance rates, and mechanic bills to name a few examples.
Let’s do another lifestyle example. Let’s use the same apartment from above, but scratch the location. We are picking up the apartment placing it in a new area. When you saw this ad online, you were shocked at the price. It was super close to your job, grocery stores, and had a bus line. The but with this one is the location. It’s in a horrible area. The crime rates are off the charts, but in your mind your thinking “I’ll save a little money now to move into a better place later.” Bad thought! I have used my squirt bottle on you. It may seem like a great idea at first, but your social life could take a nose dive.
From My Experience
Your friends may not want to drive through this area and park their cars in that part of town. They also will probably not want to walk at night to their vehicle or be worried the building will be shot up while you’re playing Scattergories. Their concerns should be your concerns. They are 100% valid. Road closures due to police barricades, helicopters going off all night, and I hope you like the sound of sirens because that will become your life.
These are all things I experienced when I had that same thought when I was younger. Let me tell you it was not worth the rent after I had to miss a day of work because the police closed the roads. Do not make my mistake! When you can drop the Starbucks and start creating your lunch to afford the couple 100.00 dollars to move to a slightly better area. To view the crime rate of the area you are about to move into, you can use Crime Reports.
The Math
Again, the template includes all of this, but just in case you’d rather do it your self the math is below. Luckily, figuring out the whole rent cost is incredibly simple when you see the actual math involved. It’s basic multiplication and addition. Yay! I love easy math, but don’t forget a calculator is another friend of yours. Please remember there may be additional bills your particular apartment has, so be sure to ask them for all of the bills up front, so your math is correct or maybe you have other living expenses that count towards rent. Just make sure to change the math as necessary for you. These are the math templates for you to get started:
Monthly Rent X .40= Maximum Budget
Monthly Rent X .30= The Finance Fairy’s Fool Proof Budget
Utility Cost+Parking+Laundry Fees+Pet Rent+Cable+WIFI+Insurance+Rent= Actual Rent Cost
Summary Of Rent Affordability
If you do not want to do the math or use my super easy template, you can use Zillow’s rent calculator. They are not accounting for the miscellaneous costs above, but you can add them up your self and use the debt section of the calculator.
In conclusion, we want to spend less than 40% of our take-home pay on rent. 30% would place us in an even better place to begin a savings or investing account. We need to add all of the different cost of the apartment to our monthly cost of rent. Take your commute and safety into consideration. You will be on your way to a healthy budget in time. As always you can leave comments or email me suggestions of what you would like me to help you with next!
Xoxo,
The Finance Fairy