How Much Should You Spend on Rent? A Life-Saving Guide

How much should you spend on rent? This is a question that many people struggle with, especially in today’s economy. The cost of rent has been increasing steadily, while wages have remained relatively stagnant.

In such circumstances, it’s tough to figure out how to make ends meet, let alone find the money to pay for rent. In this blog post, we will help you determine how much you should be spending on rent each month without breaking your bank.

Are You Spending Too Much On Rent?

How Much Should You Spend on Rent

As unfortunate as it is, there’s no straightforward answer to this question. It depends on a variety of factors, including your income, your expenses, and the cost of rent in your area. However, there are two general rules that you can follow to help you determine whether or not you’re spending too much on your monthly rent.

30% Rule

The age-old rule of 30 states that you should never spend more than 30% of your gross income (excluding taxes) on rent. This rule is a good guideline to follow if you’re looking to keep your housing costs as low as possible.

For instance,  if you earn $4000 per month, you should aim to pay no more than $1200 in rent. This will leave you with plenty of money for other expenses, such as food, transportation, and entertainment.

However, the rule of 30 may be too restrictive in some cases. If you’re unable to find a place that fits within your budget, you may have to spend more than 30% of your income on rent.

Plus, not everyone earns the same amount of money each month. In that sense, 30% of $1.000 per month is not the same as 30% of $4000 per month.

20/30/50 Rule

This is a somewhat more flexible rental rule that takes into account your total income and expenses. This rule states that you should aim to spend no more than 20% of your income on month-to-month rentals, 30% on necessities (such as groceries, transportation, insurance and utilities), and 50% on everything else.

For example, if you earn $4000 per month, you should spend around $800 on rent, $1200 on necessities, and $1600 on everything else.

This rent-to-income ratio gives you a structured budget that you can follow each month. It also leaves some room for savings and unexpected living costs.

How Do You Map Out Your Budget?

Creating a spending budget in line with your income is absolutely crucial in today’s economy. If you don’t have a budget, you’re more likely to spend more than you earn each month, which can lead to financial trouble down the road.

Luckily, there are plenty of ways that you can create a budget that works for you. Here are a few methods that you can try:

Start Tracking Your Spendings

The first step to creating a budget is to track your expenses. This means recording every penny that you spend each month. This can be done manually with a pen and paper, or you can use an online tool or app to help you keep a close eye on your spending habits.

Once you have a record of where your money goes, you can start to identify areas where you can save money. This will help you figure out how much to spend on housing and other necessary costs.

Keep an Emergency Fund

Another important part of budgeting is to have an emergency fund. This is a savings account that you should fill with at least three to six months’ worth of funds. This will help you cover unexpected renting expenses or other costs in the event that you run into financial trouble.

Additional Ways You Can Reduce Rent Costs

If you determine that you’re spending a high percentage of your income on housing, there are a few additional ways that you can reduce your costs.

How Much Should You Spend on Rent

Limit Your Spending Habits

One way to free up some extra cash is to reduce your spending habits. This means buying essential items only and canceling any unnecessary purchases, subscriptions or memberships.

For instance, instead of eating out every night, try cooking at home. Or, if you can’t live without your daily coffee fix, try brewing it yourself instead of buying it from the café.

Split the Rent with Others

If you’re having trouble covering expenses when renting on your own, consider splitting the cost with others. This can be done by finding a roommate or by living in a shared housing situation. Of course, this option only works if you’re comfortable living with other people.

Consider Relocating

Location plays a huge role in rent costs. When you’re unable to find budget rent in a particular area, consider relocating to a more affordable spot. This may mean moving to a different city or town or simply finding a less expensive neighbourhood.

To illustrate, the average rent in Canada for a one-bedroom apartment was $1.442 in December 2021. But even so, the average rent in Ottawa goes as high as $1.618 per month, while the Toronto standard is $2.013 per month. Evidently, there’s a lot of fluctuation in terms of rent prices across the country, so you should be very mindful of the specific location.

Increase Your Earnings

If you want to reduce the overall rent percentage of your income but you’re not willing to follow any of the previous steps, consider increasing your earnings to make up for the difference. This could mean finding a higher-paying job, taking on extra hours at your current place of employment or starting your own business. By doing this, you’ll be able to afford a more expensive rental without struggling to make ends meet.

Summary

Spending too much of your income on rent can be a major issue, but it’s not impossible to find ways to reduce your costs. By following the tips above, you can create a budget that leaves room for rent and other necessary expenses. And that wraps up our answer to the question “How much should you spend on rent?”.

FAQ

What percent of income should be spent on rent?

There is no definitive answer to this question. It depends on your personal financial situation and the rent costs in your area.

How much should I pay for rent?

Again, there is no one-size-fits-all answer to this question. Try to plan out your budget using one of the rent affordability calculator methods mentioned in this blog post.

How much should rent be?

Rent costs should be relative to your income. Since everyone has varying financial situations, there’s no number set in stone as the ideal price point.

ABOUT AUTHOR

When Angela combined her deep-seated love for linguistics with her growing interest for finance and money management, she struck a gold mine. She’s scoured the internet far and wide for all things related to money and finances, including payments, budgeting and investing. Now she’s eager to share her knowledge and skills with the world, determined to make it a better place. In her free time, she loves to read a good book.

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