Are You Paying Too Much for Housing?
By: James Flippin · February 23, 2023 · Reading Time: 3 minutes
The 30% Rule
Conventional wisdom says you should not spend more than 30% of your income on housing each month. But, due to the surging cost of rent in the US, this guidepost is becoming harder to live by each year.
This is especially true in major markets like New York, where those who earn the median income would need to spend almost 70% of their monthly budget to afford the average rent payment.
Experts now estimate that approximately 15 million renters across the US spend more than 30% of their income on rent.
Calculating Your Rent Percentage
You can calculate the percentage of your budget that you spend on rent by simply dividing your rent payment by your monthly income. For example, if you pay $1,200 in rent and make $4,000 each month, your rent represents 0.3, or 30%, of your income.
It’s an important figure to know. However, experts recommend that you should view the 30% benchmark as a guideline, rather than a hard-and-fast rule. Given that everyone has different living circumstances, there are other factors to take into consideration when determining your housing budget, including lifestyle and marital status.
Balancing Your Budget
When it comes to housing, one pitfall to avoid is letting your rent payment eat up too much of your income. If you’re paying significantly more than the 30% threshold, you might consider bringing in a roommate, moving to a new location, or looking for a second job to increase your baseline income.
If none of these options work, consider ways of reducing other large recurring expenses to compensate for your higher rent.
Setting your budget is a balancing act of adjusting your expenses based on your income. Since rent is often the biggest expense — and often the first paid each month — keeping it manageable is a top priority, to ensure it doesn’t tip the delicate scales of your budget.
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