How Much Rent Can I Afford?
One day you’ll have your dream home at the beach. That’s probably your retirement plan. For now, you just want a nice apartment. But ‘how much rent can I afford?’ is a common question.
We answer your questions and show you how Enzo can help you to possibly afford a better place than you thought.
For anyone starting a new job or looking for your first apartment, there’s a lot of decisions coming your way. Especially if you’re moving out of your parents’ house, you’ll face the challenges they handled on your behalf—until now.
One of the most important skills you’ll need to acquire: managing your budget.
If you can’t afford buying a place yet, allocating the right amount for rental expenses is vital for success. Have you spent enough time calculating the answer to ‘how much rent can I afford?’
You may feel you have the right to live in a bit of luxury NOW, right? But what you pay for rent has the potential to help or hinder your chances of experiencing financial freedom and success in the LONG TERM. And that makes the following tips very important for anyone
How Much Rent Can I Afford? —Important FAQ
What’s the Most Rent You Can Afford?
When working out what is a safe amount to allocate as rental expenses, many experts advise to calculate between 25% and 30% of your salary.
Be careful! This isn’t a percentage of your total salary, but the part you take home. That means your take-home pay. Yes, the amount AFTER deductions, tax and other items your employer may deduct when calculating the cash amount to pay over into your account.
How do You Know you can Afford the Rent on Your Dream Apartment?
You walk into the perfect apartment. There’s a view. You have natural light streaming in. It has the latest appliances and smart home features.
Can you sign the contract and move in?
Any housing plan must start with a budget where you list all the expenses you will have each month. It’s not wise budgeting too little for other expenses just to get the dream apartment. You won’t really enjoy a good quality of life then.
Remember, you’ll commit to that rental amount for a length of time, so make sure your ideal flat doesn’t ruin how you experience the rest of your life.
Using our previous tip, your 30% may afford you a very nice pad to live in. However, if your financial history has led to accumulating a lot of debt, your budget will need to make allowance to repay this. Or perhaps you have to travel further than most to reach the office, so transport costs will be high. What if your family needs your financial support to make ends meet at the moment? These and many other reasons lead to having less to spend on rent.
So, don’t assume 30% is safe. Your budget is unique to your circumstances.
What is the 50-30-20 Rule?
Some experts advise consumers to budget according to a 50—30—20 rule. This requires the following percentages of your salary for different types of expenses:
- 50%: Your essential living costs, including your housing, utilities, food and transportation. These days expenses like mobile phone bills are also essential. So, when wondering ‘how much rent can I afford’, it will come from this part of your income, and should not push this part of the budget over 50% of the total amount available. Most of these will be categorized as ‘NEEDS’ you can’t live without.
- 20%: Put this aside as savings as well as your retirement plan. This is how you’ll cover emergency expenses Also, having investments as part of your plan is a wise option.
- 30%: Any non-essential expenses you’ll incur on a day-to-day basis fall into this category. These expenses will look different for each person, based on your lifestyle. You may spend it on restaurants and travel while others prefer buying gadgets or spoiling their kids with clothes and toys. These expenses will be ‘WANTS’ rather than ‘NEEDS’.
How to Use a Rent Calculator
If you want a shortcut to determining what you can spend on rent, Google is your friend. You’ll find many free, helpful tools to access in order to help manage your budget, including rent calculators.
Some rent calculators ask you a few questions regarding your general expenses while others ask what percentage of your salary you’re willing to budget for rent. You can enter the amounts and based on the data you enter, it will tell you the relevant amount available for rental expenses.
It’s simple math, but with the calculators handling the calculations, you know you can’t make a silly mistake and spend more than you should.
Be honest when entering the data though! Wishful thinking doesn’t help when working out a budget.
What Expenses Must You Budget for?
Want to play it safe but you’re not sure what expenses you need to budget for each month? Here’s a quick checklist to get your budget off to a good, sensible start:
- Utility costs, such as electricity and water, depending on how much you’re dependent on the grid—solar power solutions and sustainable living environments may help you save in this department.
- Transport, whether it’s paying off a car or buying train tickets to commute to work.
- Communication, such as Wi-Fi and mobile phone costs.
- Repaying debt, you’ve accumulated.
- Any expenses relating to having kids, if applicable. This can be school fees, a kid getting braces or sporting gear.
- Health and other insurance.
- Entertainment, such as eating out.
- Supporting your lifestyle, whether it’s a gym membership or art classes.
- Self-care, including holidays like taking a trip, or seeing a therapist.
Can You Afford a Better Home or Apartment?
Struggling to afford the apartment you dream of? There are ways to make the system work for you!
Solution 1: Get a Roommate
Somewhere in town there may be someone with the same hopes you have, of living in a stunning apartment. So, join forces—and budgets—and find a place that’s big enough for both of you, but more affordable when you share expenses.
If your dream apartment has enough space for you and roommates, be willing to share your new digs and start interviewing potential roommates. When you find individuals with the right temperament, living with others can be fun and even come with some benefits, such as:
- Fewer chores, because everyone does their share
- By splitting expenses like utilities and cleaning products, everyone pays a little less
- Have company when you’re in need of a chat
- Someone to water the plants when you’re away
Of course, living together does come with challenges, because you need to establish synergy between different individuals. This is where apps like Enzo, designed with roommates in mind, come in very handy. You can easily assign chores, split expenses and pay each other outstanding amounts, share apartment rules and keep track of who would like to throw a house party on which weekend.
Solution 2: How to Cut Back on Expenses
If you realize your rent is too high for your current budget, don’t give up on your apartment just yet. You may be able to save the money you need. The 5 top money saving tips relating to general everyday expenses are:
- Plan meals better, so there’s less wastage
- Review subscriptions and cancel what you don’t really use
- Downgrade services, even if it’s just for a while
- Find ways to save money and power, such as using LED bulbs and water saving showerheads
- Order less takeout
Solution 3: How to Manage Money Better
The solution to enjoying your dream apartment could also be a little more self-discipline. You’ll be surprised at how much you save by tracking your expenses.
When you check your bank balance on a regular basis, you’ll be less likely to commit to small, unnecessary expenses to meet your WANTS, not your NEEDS. Remember, those small amounts add up to quite a lot by the end of the month!
Also, how about launching a DIY project to upcycle an old chair, rather than buying new furniture?
Lastly, as far as you can, avoid paying with your credit card. Although it’s a quick fix for your cash flow problems this month, you’ll pay interest on it in the long term, which negatively impacts your plans to hopefully become financially free at some stage.
Technology can help you avoid many unnecessary pitfalls. Whether you use a rent calculator to prevent your monthly expenses from ruining your savings plans or you use Enzo to better manage expenses with roommates, you have the power.
Stay in control of your finances and give yourself the best chance at a future where you can enjoy financial freedom—and afford your dream home on the beach one day!