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How much should I spend on rent?

You can live where you want — just be prepared to pay for it.

Justin Cupler

Contributing Writer at Tally

March 25, 2020

Whether you’re moving for work or other reasons, you’ve probably asked yourself, “How much should I spend on rent?”

To answer that question, you’ll need to establish a monthly budget that offers you a full picture of your finances. Once you know what percentage of your income goes toward your other monthly expenses, you’ll have an idea of how much you can afford to spend on monthly rent payment. 

Rethink the 30% rule

Prevailing wisdom has long asserted that you should expect to pay 30% of your gross monthly income on rent. But the 30% rule is based on outdated federal legislation passed in the 1960s, which prohibited public housing structures from charging more than 25% of a tenant’s monthly income. (In the ’80s, the number crept up to 30%.)

Today, 30% is an imperfect benchmark for establishing a reasonable monthly rent. 

Millions of Americans are now dealing with sizable student debt, not to mention credit card debt and growing financial anxiety. To put a figure on it, a recent study claims that the average American owes $29,800 in personal debt, not counting mortgages. 

Carrying substantial debt makes it more difficult to pay rent, especially if you expect to spend 30% of your monthly income on that expense alone.

For example, say you earn $4,000 a month. After deducting taxes ($880), you’d still have to shell out $1,200 a month on rent. That leaves you with $1,920 for the rest of your living expenses, including groceries, utilities, transportation costs or car payment, and whatever debts you owe. After deducting those expenses, there’s not much left for savings or discretionary spending.

Establish a monthly budget

Calculating your monthly budget is more effective than sticking to the 30% rule because it starts by taking a comprehensive view of your finances. 

With your monthly income and expenses in mind, you can better assess what’s reasonable to spend on rent rather than blindly sticking to a rule. To help you establish a monthly budget, we’ve laid out a few tips below. 

Start with your salary

The first step in assessing your financial situation is to look at your net monthly income — that is, the amount you bring in each month after taxes and deductions. If you’re a salaried employee, you can determine your monthly budget rather easily since it’s a fixed income every month. 

However, if you work hourly or are self-employed, your take-home pay may vary from month to month. In this case, create a rough estimate of the minimum monthly amount you expect to earn to establish your financial baseline.

Calculate your cost of living

Cost of living is crucial when considering rental cost. For instance, monthly expenses in New York City or San Francisco will be much higher than if you live in a rural area in Oklahoma or a less-populated city. 

Here’s a quick list of typical living costs that can help you calculate your monthly expenses:

  • Renter’s insurance 

  • Credit card debt

  • Student loan payments

  • Gas

  • Food

  • Utilities

  • Clothing

  • Car payment and car insurance 

  • Health insurance 

  • WiFi 

  • Phone bill 

  • Subscription services (Netflix, Amazon Prime, etc.)

With these upfront costs laid out, you can clearly see where you sit financially. Simply subtract your total living costs from how much money you take home on a monthly basis. You can then determine how much of your monthly budget you want to allocate towards your housing budget.

Decide what you’re willing to pay each month

To answer the question, “How much should I spend on rent?” it’s not just about what you can afford, it’s about what you’re willing to spend. If saving money is your primary goal, then it’s likely in your best interest to only pay for what you need and keep your housing expenses low. Maybe that means finding a roommate or renting a place in a neighborhood where rates are lower.

If you’re picky about where you want to live — and you’re willing to have less disposable income every month — then you have more options when it comes to choosing a residence that meets all of your requirements. 

Some people are OK with an affordable place and more frugal living if it means saving a few hundred dollars a month or paying down credit card debt, while others value a nicer location with more accessible amenities. This is where you have to thoroughly consider your goals and lifestyle. 

Consider the 50/30/20 budget rule to guide your spending

Although the 30% rule of thumb has been debunked, there’s still some assurance in having hard-and-fast rules to guide you when scoping out a new living situation—especially when you’re paying off substantial debts. One such rule is the 50/30/20 budget rule.

This plan helps you prioritize your spending habits by allocating specific percentages of your income toward necessities and nice-to-haves. To do this, divide your income into three main areas: 

  1. 50%: Needs 

  2. 30%: Wants

  3. 20%: Savings 

Your needs

Needs include your cost of living expenses, such as rent, utilities and debt payments. According to the rule, you should reserve 50% of your total net income for all of your needs. Doing so will also help you determine if you have certain costs that are too high. 

To reduce the financial obligations of your monthly needs, look at ways to curb your spending where possible. Here are a couple of ways you can do that: 

Get a roommate

It’s not uncommon to get a roommate in sprawling urban areas to help make rent more affordable. In cities like Austin, Texas, for example, you can find relatively new two-bedroom apartments going anywhere from $950-$1,300 a month per person. 

You’ll have to do some digging to find these deals, so start your search using online resources like, and fine-tune it by joining local apartment and rental Facebook groups. 

You can often find deals on social media groups, be it subleasing someone’s place temporarily or connecting with a real estate agent who can give you valuable insights on the area you’re interested in. 

From there, you can also inquire about roommates or living situations where a roommate is needed. Although you may not prefer it, sharing a rental is an effective way to cut down on housing expenses so you can build your savings, pay off debts and eventually live on your own again. 

Consolidate your debt

If managing your debt payments is a challenge, it might be time to consider debt consolidation. Consolidating your debt allows you to refinance multiple debts into a single, lower-interest monthly payment. 

There are two common methods to go about debt consolidation: 

  1. Take out a debt consolidation loan

  2. Transfer your balance 

The first option requires you to take out a fixed-rate loan to pay off all your debt. You then pay off that debt as a single monthly payment over an agreed-upon period. 

The second option, known as a balance transfer, requires you to open a new credit card that offers a 0% APR rate during an introductory period. Your debt is then transferred to the balance transfer card so it doesn’t accrue interest. After the introductory period, though, it’s easy to accrue interest fast, so it’s not an ideal method if you can’t pay off your debt in a timely manner. 

If neither of these options appeal to you, then you may want to consider opening a personal line of credit with Tally. If you’re approved after uploading your cards to your account, Tally will offer a lower APR than you’re currently paying so you can get ahead of your debt one payment at a time. 

Your wants

Wants are the non-essentials you spend money on — things like dining out, entertainment, video games or other hobbies. Wants might also include other luxuries like unlimited data on your phone plan, so you can stream movies while traveling.

Your savings

The 50/30/20 income ratio rule suggests depositing 20% of your take-home pay into a savings account the moment you get paid. You can do this manually or ask your bank to automate it if you have direct deposit.

Automating your savings means you won’t see the money leave your account, which can make it easier to do. If you’re not there yet with your finances, don’t worry. Choose a smaller percentage that works for your budget. Perhaps 10% is a better starting point, or even putting in $20 from every paycheck into your savings account. The key is that you’re building your savings over time.

So ... how much should be spent on rent? 

With the 50/30/20 rule in mind, you allocate 50% of your budget toward needs. These are non-negotiables that must be paid. But how much of that should you spend on rent? Let’s look at one more example. 

Say your monthly gross income is $4,600. To get your net income, you need to take out state and federal taxes (22%) and retirement (5%). After these deductions, assume you net $3,400. 

Based on the budget rule, your spending will be as follows:

  • $1,700 on needs

  • $1,020 on wants 

  • $680 on savings 

With $1,700 as your target amount for needs, you can get a realistic idea of what you can and cannot afford for rent. 

What you pay for rent is a personal choice

While there are many rules you can follow when it comes to deciding how much you should spend on rent, the bottom line is that there is no one-size-fits-all answer. 

To ensure you don’t go above your means, calculate your monthly budget based on your salary, living expenses and outstanding debt. From there, you’ll see what you're left with and how much of that you can realistically put toward rent while reaching your financial goals.