Budget: How Much Rent Can You Afford?
It can be exhilarating and a little frightening to sign a lease agreement on an apartment or home. There are a number of things to consider before signing a lease agreement, not the least of which is whether or not you can afford your rent. Rent is usually the most expensive payment you'll make each month, so it's a good idea to run the numbers before locking into a lease.
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Make a Budget
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Get a clear picture of where you are financially by creating a budget. It's not as complex as it sounds. Divide a sheet of paper into two sides. List all of your monthly income from all sources on one side, and all of your monthly expenses on the other. You should account for all of your income each month, including money that you put into savings or investments, and money that's just for fun. This is your budget. It's helpful to keep an expense diary for a couple of months while making your budget. If you record all of your purchases by category, you might be surprised to find you're spending more or less in some areas than you thought.
Basic Rent Percentage
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Conventional wisdom says that you should spend no more than 30 percent of your net income --- income after taxes--- on housing. The U.S. Census Bureau refers to housing expenses in excess of 30 percent as "housing-cost burden," yet the bureau notes that as of 2007, 46 percent of renters committed more than 30 percent of their income to their housing needs. Renters who pay more than 30 percent of their income for housing are more likely to experience financial difficulties than those with a lesser housing burden, based on historical data according to the bureau.
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Additional Costs
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The monthly rental rate is not the only factor to consider when trying to determine which house or apartment to rent. Before you sign on the dotted line, you should find out if utilities are included in the monthly rental payment, or if you have to pay for them separately. If you're responsible for paying the utilities, check with the utility company to get a usage history for the dwelling and add this to your budget under the housing category. Consider additional costs for cable or satellite television, Internet service, laundry, garbage collection, late-payment fees and other costs that may be unique to the property.
Considerations
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Divide your gross income --- your income before taxes --- by four. This gives you a rough idea of how much you should be able to afford for rent. If you make $4,000 per month, you should be able to afford $1,000 per month for rent. Shop around. Different neighborhoods may command different prices for the same basic dwelling. Consider your commute distance to work. It may be worth the extra drive time to get a cheaper rate on your rent, or you may be willing to pay a bit more to cut some time off your commute. If the amenities you want in a rental are out of your reach financially, consider sharing expenses with a roommate.
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- Photo Credit apartment lease sign image by Aaron Kohr from Fotolia.com
