How to Calculate How Much Rent You Can Afford
Understanding what you can afford to pay is imperative to deciding where you can and will live. The same principle that lending institutions use to determine mortgage affordability can be applied to rental properties. Expect that about one third of your net income will go to rent. However, before determining a more exact amount you need to consider all of your fixed payments
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Instructions
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Use your gross annual income figure as a starting point. While your net income is more relative, if for some reason you are not having enough deducted from your paycheck each week, you may wind up owing Uncle Sam more than you anticipated at the end of the fiscal year. As a benchmark, deduct 20 percent from your gross pay and divide that by 12. Compare that monthly income figure to your net monthly paycheck. For calculation purposes, choose the smaller number.
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Gather your monthly debits including car payments, school loan and credit card payments, insurances, your estimated medical expenses and entertainment expenses. You will also need to estimate how much you can expect to spend on living expenses exclusive of rent, such as telephone, utilities, television and internet expenses. Finally, consider your lifestyle. If travel is an important part of your life, you may want to consider renting less than you might technically be able to afford.
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Choose an estimating calculator. Plug in your annual gross income and hit "calculate." The resulting numbers will offer you a rent affordability range. The Rent Affordability website (see resources) asks specific questions to help calculate your monthly rental allotment.
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Tips & Warnings
Be careful not to neglect any of your financial information. Even if a payment occurs only once a year, you will need to include it in your expenses. Additionally, any income you receive beyond your weekly paycheck should be included in your annual income.
