Yes, spending more than 50% of your income on rent is generally considered a bad idea for several reasons: Financial Strain: Allocating such a large portion of your income to housing can leave you with limited funds for other essential expenses, such as food, transportation, healthcare, and savings.
Traditional advice suggests renters spend no more than 30% of their gross income (that's the income before taxes) on rent.
It is recommended that you spend 30% of your monthly income on rent at maximum, and to consider all the factors involved in your budget, including additional rental costs like renters insurance or your initial security deposit.
Spending more than 30% of net income on rent is not a good idea, let alone gross income, and it's a sign of the times we live in that many people have no choice but to spend more. For a mortgage, I think it makes sense to spend a little more than 30% of net income, especially given current rates, but not by much.
You must make $5,000 per month to afford a $1,500 monthly rent.
If you don't make three times the rent, don't worry. Not all landlords and property management companies stick strictly to this rule. Some might be more flexible, especially if you have a good credit score, a stable job, or can offer a larger deposit.
For example, if you're making $20 an hour, assuming you work a standard 40-hour workweek, your monthly income is $3,200. Based on the 50% needs category, you should aim to spend no more than 30% of yours income on rent, which comes out to $960 per month.
While the world of personal finance provides a percentage guideline for how much of your money should go toward housing, this rule is a little outdated in 2024. Rent prices are down from their peak in August of 2022, but they're still dramatically higher than before the pandemic.
If too much money goes to the rental unit, tenants might have difficulties paying all their bills, including necessities like food, clothing, medical care, and transportation. Although shelter is also a necessity, cost-burdened tenants might not be able to pay for it.
If you make $40,000 a year, you can afford to spend $1,000 a month on rent. If you make $50,000 a year, you can afford to spend $1,250 a month on rent. If you make $75,000 a year, you can afford to spend $1,875 a month on rent. If you make $100,000 a year, you can afford to spend $2,500 a month on rent.
Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
30% rent rule
This rule essentially suggests people pay around 30% of their gross income on rent. Those making $4,000 a month before taxes, for example, should likely spend up to $1,200 a month on rent. However, Nerd Wallet notes: “This is a solid guideline, but it's not one-size-fits-all advice.”
The standard advice is that you should set aside about 30% of your gross income for rent. So if you make $60,000 a year, your rent should not exceed $1,500. While this might be plenty for an individual living in a low-cost area, it doesn't work for a family in a pricey neighborhood.
Is 30% of your income too much to spend on rent? Yes. You should spend no more than 25% of your monthly take-home pay on rent. Spending 30% or more will mean not having enough room left over in your budget to put toward other important financial goals like saving for a down payment on a home.
Our 50/30/20 calculator divides your take-home income, or the money that goes into your account after taxes, into suggested spending in three categories: 50% of net pay for needs, 30% for wants and 20% for savings and debt repayment.
Generally, experts recommend spending no more than 30% of monthly pre-tax income on housing. However, it's not always that simple. According to the U.S. Census Bureau, between 2017 and 2021, over 40% of renter households (19 million) spent more than 30% of their income on rent.
First, calculate your monthly take-home pay, then multiply it by 0.70 to get the amount you can spend on living expenses and discretionary purchases, such as entertainment and travel. Next, multiply your monthly income by 0.20 to get your savings allotment and 0.10 to get your debt repayment.
Take Advantage of Your 30s
It may feel challenging to save and build wealth, but at this stage in your life, just getting a start, cutting back in some areas and contributing in others can go a long way toward helping maximize your investments. Your future self will thank you.
If you earn $100,000 a year before taxes, you could technically afford $3,000–$3,250 a month in rent.
If you make $23 an hour, your yearly salary would be $47,840.
How much should I make to Afford $1500 Rent? Let's say you've got your eye on a cool place that costs $1,500 a month. You want to stick to the 30% rule, so let's do the math: $1,500 / 0.30 = $5,000. That's your target monthly income.
The '3x rent' rule is essentially a risk mitigation strategy for landlords. It provides them with some level of assurance that the tenant has sufficient income to consistently cover rent payments along with their other monthly expenses.
The 3 times the rent of $1400 is $4200.