Estimating How Much Rent You Can Afford
Your monthly rent is a serious financial commitment. Before you start your rental search, know what you can comfortably afford. These simple steps will help you estimate how much rent you can handle.
What you earn
How much money you make each month is the biggest factor in determining how much rent you can afford. You should be paying no more than 28 percent of your income to rent, as a rule. It’s tempting to push that number up, but comfortably covering all of your expenses, plus emergencies, is vital if you hope to stay out of debt.
What you spend
If you haven’t yet made yourself a budget, these numbers may take some work. First, record all of your fixed expenses. Those will include your current rent, deposits and fees or, if you’re not yet renting, what your target rental will cost you. To this, add utility fees, childcare expenses, monthly loan payments (car, student, credit cards), insurance premiums (if not deducted from salary), and any membership dues. Come up with a realistic fixed number for things like savings, hair cuts, clothing and donations to charity.
For expenses without fixed numbers, gather receipts and invoices of your medical, dental, food, gasoline, car repair and entertainment costs from the past year. Also gather records of annual or semi-annual payments such as taxes. Be sure to set aside an estimate of what an ER visit or unexpected car repair might cost. You can always count on unexpected expenses.
Don’t cut it too close
Once you know your income and outflow you should be able to figure out what rent you can afford. Ideally, you want to come out with a 10 percent margin of surplus in your favor. If your income and expense numbers are too close, see what can be cut. Shopping around for cheaper rates on utilities, phone, insurance, cable and credit cards can save you a lot.
The right rent for you
Now that you have a realistic rent range to work with, start your rental search and see what you can find in terms of neighborhood and features. If the choices are slim, you may need to adjust your expectations or your monthly expenses. Continue fine-tuning your wants with what money you have to work with, until you have reached a compromise that will leave you a financial buffer each month.
Finding a rental home can sometimes feel like a desperate search, but don’t let your eyes get bigger than your bank account. Sure, it’s hard to resist the dream rental, but it’s better to get realistic, be honest with yourself and choose the one that works within your budget.
SOURCE: Renter’s Corner www.Rentals.com