🏡 Budgeting: what should you spend on rent?

Saturday,
March 4, 2023

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The week in review

• After a slew of hotter-than-expected inflation numbers, the benchmark 10-year yield has now reached its highest level since November, just shy of 4%. The move higher is a note of caution for bulls as Fed tightening continues to act as a major headwind for equities

• The average contract for 30-year fixed-rate mortgages increased to 6.71% in the week ending February 24th. This marked the third-straight increase and the highest reading since November, as the Fed’s fight against inflation continues to drive interest rates higher. On a related note, demand for mortgage applications dropped 6% last week to a 28-year low.

• The initial jobless claims report showed the number of Americans filing for unemployment benefits fell to 190,000, a decline of 2,000 from the previous week. The latest figure was below market expectations of 195,000 and close to the nine-month low. This is further evidence of a tight labor market which could exacerbate inflationary pressures throughout the economy.

For more economic news, visit On the Money — SoFi’s one-stop-shop for news, trends, and tips!

The question isn’t “How much can I spend on rent?” — it’s “How much should I spend on rent?”

Although no two financial situations or budgets are exactly the same, there’s been a long-standing rule of thumb that says people shouldn’t spend more than 30% of their after-tax income on housing.

In September 2021, the US Bureau of Labor Statistics released how people in the United States are spending their income, percentage-wise, in key categories. Here is an overview:

• Housing: 33.8%

• Transportation: 16.4%

• Food: 12.4%

• Personal insurance/pensions: 11.8%

• Healthcare: 8.1%

• Apparel and services: 2.6%

This shows that, on average, people are slightly above the recommended percentage for housing expenses.

Next, let’s dig into how to figure out the amount you can spend on rent every month. We mentioned a ballpark figure, but remember: There’s no single magic formula, and everyone’s situation is different.

That said, there are several formulas out there that you can use as a guide. Here are three strategies for figuring out how much to spend on rent.

This week’s top stories

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Are gas prices headed up or down? That depends on these four trends.
These conflicting trends make it difficult to predict how much gas might cost over the summer. In order to plan ahead, here are the stories you should keep an eye on.
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Restaurant chains are the latest industry to offer paid membership programs. But consumers should be wary of subscription sprawl. Cost savings can easily morph into financial leaks.
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Deep dives from SoFi Learn

Here are 15 ways you can pay less on fuel for your car and home heating system.
These are some of the easiest ways to reduce the pain both at the pump and when paying for heating costs.
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Whether you’re building your emergency fund or saving for a big purchase, like the down payment on a home, there are some things you can do to make the task less tedious.
Learn 15 creative ways to save money towards your financial goals — and perhaps even have a little fun along the way.
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