Finding a rental to live in comes with a hefty set of considerations. There's the location, the size, the amenities, the landlord, etc. First and foremost, though, you need to consider whether or not you can pay the monthly rent. But figuring out exactly how much rent you can afford can be a daunting task—especially if it's your first time renting a place, your financial situation recently changed, or you're just easily overwhelmed by money decisions in general (and you wouldn't be alone in that).
Creating the right rent budget for you involves factoring in everything from your financial means to your personal values. To break down all these considerations, we spoke with behavioral finance expert Shari Greco Reiches and NerdWallet's home expert Holden Lewis for the best ways to create a personalized rent budget.
How to budget for rent:
Use the 50/30/20 rule over the 30% rule.
Neither Reiches nor Lewis stands firmly by just one budgeting rule, but when it comes to the these popular rent-related budgets, they both agree that the 50/30/20 rule is preferable to the 30 percent rule. The 50/30/20 rule dedicates 50 percent of your budget to necessities (like rent, groceries, utilities, medical bills, etc.), 30 percent to wants (like "just because" shopping or dining out experiences), and 20 percent to savings and extra debt payments. The 30 percent rule, on the other hand, is based on the idea that you should spend no more than 30 percent of your income on rent—but it leaves quite a few people and considerations out of the equation.
For starters, Lewis explains that the 30 percent rule is based on a middle-class viewpoint and that "not everyone can spend less than 30 percent of their income on rent if they have a low income." Spending less than 30 percent on rent can also be difficult in certain cities where there's a much higher cost of living. The 50/30/20 rule, in comparison, provides a little extra room and more options for budget customization. "When you think about that 50 percent bucket, it just gives you a little bit more flexibility to pay say 35 percent or 40 percent of your income for rent if that's what you have to do," Lewis says.
Adjust the budget to your lifestyle and needs.
Budgets, like the 50/30/20 budget, shouldn't be considered hard and-fast rules, but instead can be used more as a customizable scale. Reiches likes to advise her clients to build a budget that suits both their means and their values. So, if a client highly values comfortable or luxurious living situations, and they find a dream rental that's going to push them over that 50 percent bracket (with utilities, debt payments, and other needs factored in), she won't tell them they can't make that decision. Instead, she might advise them to reduce their wants (the 30 percent bracket). "I don't like people reducing the savings, but if they have to [in order to afford a higher-priced rental], they can temporarily," she adds. In another scenario, someone who highly values travel and spending money on experiences may have to opt for a lower-cost rental to balance the scale.
The most important part, though, is to adjust your budget to acommodate for your expenses—don't simply pay outside your means and hope for the best. "The numbers have to add up to a hundred," Reiches says. "When they don't, that's when debt starts to occur."
Consider all the hidden costs.
Whether you follow a budgeting method or not, it's important to remember that rent isn't a fixed cost. Utilities, such as electricity, gas, water, and internet, can all add to your monthly expenses. So when considering a rental, make sure to ask which utilities are included in the rent and factor in the approximate monthly costs of all the ones that aren't.
Other sometimes forgotten costs include the upfront costs like the security deposit and the cost of moving. While some states have a limit of a one month's rent deposit, landlords in some states can charge three months rent or more. In addition to putting down the deposit and first month of rent off the bat, you'll also need to factor in how much money it'll cost you to move. For example, do you need to pay for movers, rent a moving van, or buy a bunch of items for your new place? While these aren't repeating monthly costs, they should be factored into your overall rent budget, as they can eat away at your personal finances.
Think about the future.
Landlords and management companies create lots of incentives to get people in their rentals, but they don't always represent future prices. "Sometimes people get excited because they get two months rent free [at the beginning], but then all of a sudden the year ends and their rent skyrockets up another hundred or $200 or something like that," Reiches says. "Make sure that if you did get a discount on your rent, that you can afford what the rent would be in the future," she adds, explaining how it expensive it can be to keep moving year after year.
Reiches also notes how important it is to "read the fine print" when signing a lease and look into the opt-out clause. If you aren't sure how long you'll be able to stay in a place, ask about the penalty of leaving early and try to negotiate a clause so that you won't end up paying super high fees.
Another part of thinking about the future involves considering the savings you'll have later on. If you chip into your savings to splurge on a dream apartment, it may make you happy now, but may not set you up for as comfortable of a lifestyle down the line.
Don't compare yourself to your friends.
Your friend's rent budget may be quite a bit different from your own—and that's OK. Lewis says it's important not to compare your rent budget to that of your friend because, for one thing, everyone has different financial situations, but also because not everyone is going to be completely transparent about how they're paying their rent. "A lot of people get financial support from their parents, especially young people," Lewis says. "So if you're like me and you had to pay your own way, you might wonder what your friends are doing right and what you're doing wrong, and you might not be doing anything wrong. Your friends might just be getting a couple hundred bucks every month to subsidize their rent and give them some more financial breathing room." While there's nothing wrong with either situation, it proves the importance of creating an individualized rent budget based on your own life, not anyone else's.