Part of managing your finances is determining how much you should be spending on rent. Since rent payments are a big chunk of your income, you may be wondering if you live below your means or not. Or maybe you are about to rent an apartment for the first time and you have no idea how much income should go to rent…

As a general rule of thumb, you should spend 25% to 30% of your income before taxes on rent. But since rent prices fluctuate so much around the world, you may be justified to spend half of your salary on rent. Everyone’s situation is different, so it pays to spend some time examining your finances to determine your ideal percentage…

In this article, we will answer important questions like:

  • Where does this rule of thumb come from?
  • What should I do if I can’t make 3 times the rent?
  • Why is that rule important?
  • Should I get a mortgage and forget about renting?

Does that sound good? If so, let’s get started right away…

Where Did the 30% Rule Come From?

When it comes to renting, the 30% rule traces its roots back to 1937 when the National Housing Act was created in the US. But it reached that threshold in 1981 based on what most Americans would averagely spend on housing.

Now, does this mean you should follow this rule even if the landlord does not require you to? Well, no…

The reason you should be flexible when it comes to this matter is that what applies to most might not apply to you. What if you live in a city like San Francisco or New York? The rent prices are through the roof in some parts of the world and if you’re unable to move to another city or can’t increase your income right now, you might have to forget about the rule.

Of course, it’s always worth a try to see if you can’t find a better deal around the city or pick a new side-hustle to keep renting expenses around there (a third of your income).

What If I Can’t Make 3 Times the Rent?

Some landlords may require that you make at least 3 times the rent before they accept to rent you a place to live. This may not be much of an issue for most but if you have a low-paying job, you will want to have more flexibility.

If you’re absolutely sure that you can’t find another place to rent as good as the one you have found, I would advise you to try and see if you can persuade the landlord to be more flexible.

You need to understand that the reason landlords impose this rule is to ensure that you’ve got enough money to never fall behind rent payments. So, maybe you can persuade them by explaining how good of a budgeter you are or how you have never fallen behind any related payments in the past if that’s the case.

Otherwise, if you have found your dream apartment, then you could try to increase your income and be patient.

Why Is the 25%-30% Rule the Best?

The reason why personal finance gurus recommend this rule is that you’re both safe and you have enough money to retire.

For me, it’s more of the latter. The rent expense should always obey the retirement contribution. If you think that you save enough already, then you could probably ignore the rule and not be in the wrong.

That’s why it’s important to determine how much you will need to save for retirement before you worry about how much you should spend on rent.

Should I Get a Mortgage Instead?

Many people nowadays feel like they waste money by renting. That might be the case if you are one of the lucky ones who won’t need to fix a single thing after buying a home but will only need to pay their mortgage. Most often than not, this is not the case though.

Before you consider getting a mortgage, ask yourself these questions:

  • Can I picture myself living in that house for at least a decade?
  • Do I have enough cash to cover any unexpected expenses related to my house?
  • Can I safely predict my future family needs and will the house I will buy cover them?
  • Will I continue to work in this city for as long as I own this house?
  • Can I find a bank that will give me a fixed-rate mortgage?
  • Do I have enough cash for at least 20% of a down payment?

As you can see, there are a lot of things you should consider before you go out and get a mortgage. If you answered “yes” to all of the above questions, you are 100% justified to get a mortgage and not rent.

But if you’re like most of us mortals, you may need to rent until you fulfill all of those criteria.

Conclusion

As I already told you, the general rule of thumb is to allocate around 25% to 30% of your income towards your rent payment. If you can’t, then you may have to look for another place to live or at least find ways to increase your income.

Also, try to see if you qualify for a mortgage (from a personal finance perspective) by taking into account the things you need to ask yourself as outlined above.

Did you enjoy this article and did it answer your question? If so, please share it with others using the social media buttons below and let me know what you think in the comments below.

Thank you for reading and I’ll talk to you next time.

Disclaimer: This information should not be viewed as financial advice. You should consult a financial advisor or do your own due diligence before you invest. The owner of this website and author of this article are not to be held liable for any undesired result by anyone who uses this information that is provided here in any way.