How Much Rent Can I Actually Afford?
Rent prices are rising, often at a faster pace than wage growth. If you’re wondering “how much rent can I afford?” learn more here.
February 10, 2022
Although the media often focuses on homeowners, roughly 35% of American households live in rental properties. And, for these millions of households, rent is quickly becoming a bigger financial burden.
Across the country, rents on apartments have increased by over 17% in the 12 months leading up to November 2021 — and experts predict that more rent increases are on the way in 2022.
All this begs the question — how much rent can I afford?
There’s no “one size fits all” answer, but this is a question that’s well worth exploring.
How much rent can I afford?
It’s important to control your spending on rent, as housing is the largest expense category for the average American household.
We can look at averages to get an idea of what the typical household spends on housing. In 2020, the figure was between 32.4% and 40% of all expenses.
However, this figure includes all “housing” costs, including utilities, insurance, mortgage interest, etc. — so it’s not necessarily a perfect comparison. Additionally, these figures refer to percentage of expenses, rather than percentage of total income.
A better way to ask “how much rent can I afford?” is to look at some of the typically referenced guidelines from financial advisors. Here are a few of the most common.
Common guidelines for rent affordability
The 30% rule
One of the more common recommendations by financial experts is that households should spend no more than 30% of their gross monthly income on rent. This goal is out of reach for many people, as the latest statistics show that around 41% of renters spend more than 35% of their income on rent.
That means that if you and your partner earn a combined $6,000 each month, it’s wise not to spend more than $1,800 on rent. If you live alone and make $2,500 each month, spending no more than $750 per month (which may require getting a roommate) is recommended. Some consider this rule to be outdated in this day and age, but it remains a decent starting point to figure out rent affordability.
The 50/30/20 rule
One common budgeting strategy is called the 50/30/20 rule. This guideline states that a person should aim to spend around 50% of their budget on “needs” (rent, groceries, bills, etc.), 30% on “wants” (restaurants, entertainment, etc.) and 20% on savings and debt payoff.
What rent can I afford if following the 50/30/20 rule? That depends on the remainder of your “needs” — how much you spend on groceries, utilities, etc., and on your total income level.
How much can I afford for rent if I’m saving to buy a house?
If you’re saving up for a down payment, try to lower your rent expenses in order to save more towards your financial goals.
There’s no hard-and-fast rule, but the more you can save, the quicker you’ll be able to buy your own home.
Some people even choose to cut costs drastically by sharing housing with roommates or moving in with their parents, which leads us to our next section.
How to save money on rent
There are various strategies and tips you can utilize to lower your rent expenses. Here are some ideas to consider.
Live with roommates
Sharing housing with roommates is a great way to save a substantial amount of money on rent each month.
To illustrate, consider these nationwide averages:
A 1-bedroom apartment rents for $1,683 per month
A 2-bedroom apartment rents for $1,977 per month
Splitting a 2-bedroom apartment with another person would cost $988.50 per person, compared to $1683 per person for two separate 1-bedroom apartments
That’s a savings of over $694.50 per month!
This is, of course, a simplified example based on nationwide averages. However, it provides a basic idea of the potential cost savings of living with a roommate.
Negotiate lease renewals
If you’ve been living somewhere for a while and it’s time to renew your lease, you may be able to negotiate with the landlord for a slightly reduced rent. This is particularly true if you’ve been an excellent tenant, or if you can offer the landlord something in return (like signing a long term lease or offering to help out with yard maintenance).
Learn more in our guide to negotiating rent.
Other ways to save on rent
Move in with your parents or family members (52% of young adults in the US now live with their parents)
Give up your parking space if you live in an apartment complex
Consider alternative living spaces, such as in-law units or tiny homes
Think about moving to a lower cost of living area
Asking how much rent can I afford is one thing — but the answer truly depends on many factors. Here are a few things to consider:
Are you renting in an expensive area in order to avoid a long commute or get a higher-paying job? If so, spending a bit more may be acceptable.
Are your other financial goals on track? How about your retirement savings? If your other goals are not on track, aim to spend as little as possible on rent in order to get ahead.
Would you be better off buying a house? Some home loans are available with as little as 3% down. Use a “what rent can I afford chart” or rent vs buy calculator to gauge what makes sense in your area.
Do you have high-interest debt to pay off? If so, this is a top priority, so do what you can to reduce your monthly rent in order to pay off debt more aggressively.
What is truly important to you? If you value having a nicer home, that’s okay — but you may need to cut down your expenses in other categories in order to afford a luxury apartment or house.
Have debt to pay off? Qualifying Americans can use Tally† to pay off their credit card debt faster with a lower-interest line of credit.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.