How Much Rent Can I Afford?

Okay, so you’ve crunched the numbers and decided that, for now, buying a house isn’t going to happen. That’s no biggie—it’s okay to rent! Sometimes renting really is the best option. You might just be starting out after leaving your parents’ house, or you might be working hard to get out of debt. Whatever your reason for renting, you’re in good company—more than 100 million people in America are renters.¹

But you probably have an important question on your mind: How much rent can I afford? Let’s dig into how much you should spend on rent, plus why you shouldn’t feel bad about renting.

How Much Rent Can I Afford?

Your rent payment, including renters insurance (more on that later), should be no more than 25% of your take-home pay. 

That means if you’re bringing home $4,000 a month, your monthly rent should cost you $1,000 or less. And remember, that’s 25% of your take-home pay—meaning what you bring in after taxes.

We know, 25% might seem like a low number to you. After all, there are plenty of people who spend a lot more than that on their housing costs. But if you spend more than 25% of your take-home pay on rent, your budget will wind up being really tight.

Sure, you’ll still be able to pay for food and put gas in your car, but you won’t have a whole lot left to spend on life’s other necessities (and, no, goat yoga is not a necessity).

Worse, it’ll be really tough to find enough money to get yourself out of debt or, if you’re already debt-free, save up for a down payment on a house. We call that house poor—aka broke. Don’t volunteer to be broke by paying too much for rent.

How to Calculate How Much Rent You Can Afford

Get out that fancy graphing calculator you haven’t used since 10th-grade algebra class. Just kidding, this isn’t complicated at all!

To calculate how much you should spend on rent, you need to know your monthly take-home pay—your gross pay minus any tax or health insurance withholdings. You can figure this out by looking at your paystub or (if you have direct deposit) simply looking at your bank account to see your monthly deposits from your employer.

Then, multiply your take-home pay by 0.25. Ta-da! That’s how much rent you can afford.

Here’s an example:

• Let’s say you make $56,000 per year.

• Your monthly take-home pay would be around $3,734.

• If you multiplied that take-home pay by 0.25, you’d wind up with $933.50.

• So, with a $56,000 salary, the most you should spend on rent in a month is $933.50.

Simple, right? Here are some other estimates of how much of your income you should spend on rent, based on how much money you take home each month.

Income	Rent You Can Afford
$40,000	$710
$50,000	$876
$60,000	$1,040
$75,000	$1,260
$90,000	$1,480

And by the way, you should keep renting until you’ve paid off all your debt, built a full emergency fund worth 3–6 months of your typical expenses, and saved up a strong down payment for a house (more on that later).

What About Rent Increases?

You may be wondering how rent increases play into all of this. Let’s talk about it.

First, you should know the state you live in probably has laws your landlord has to follow if they decide to raise your rent. Most states require landlords to give advanced notice of raises—usually 30 days—and some local governments even put limits on how much landlords can hike up your costs.

Find expert agents to help you buy your home.

If you’re already renting and facing a price increase, double-check the laws in your area to make sure your landlord isn’t stepping out of line. (One downside of renting is that rent usually goes up from year to year.)

But even if your landlord is playing by the rules, that doesn’t mean you just have to take your ball and go home. You can still negotiate.

The key thing to remember about how to negotiate rent increases is landlords like having good tenants and don’t like having bad ones. So, if you’re a good tenant (as in, you make your payments on time and don’t break stuff), you should remind your landlord of that. Keeping you around—and not having to risk renting your place to a deadbeat—could be just the motivation your landlord needs to be more reasonable on a rent hike.

You may also be able to talk your landlord down if you offer to sign an extended lease, like 18 months instead of 12. Or if you do some research and find your new rent would be above market value, you’d have a good argument on your hands.

If you’re still stuck with a rent raise, and the new payment is too pricey for you, then it’s time to look for a new place to live.

What Can I Afford to Rent?

If you’ve decided to rent, you probably know there’s still one more decision to make: whether you should rent a house or an apartment. The answer depends on several factors, the most important being what you can afford. Remember: When you’re trying to figure out what you can afford to rent, keep that 25% number at the top of your mind.

Renting a House vs. an Apartment

Traditionally, renting an apartment has almost always been cheaper than renting a house. But as prices continue to rise, that may not be true for you.

The average price for a one-bedroom apartment in the U.S. is now at $1,176 a month.² Even though the cost of renting a house has also gone up, it can still be the more affordable option if you’ve got roommates to split the payment with.

For example, a three-bedroom house with a monthly rent of $2,400 will only run you $800 if it’s split three ways. That’s nearly $400 cheaper than the cost of the average one-bedroom apartment. (Of course, if you’re living alone, renting an apartment may still be the cheaper option.)

Plus, the cost difference in renting a house versus an apartment will vary based on where you live. For example, getting into a house in the heart of New York City isn’t exactly a realistic option for most folks.

That’s why, when you’re deciding between renting a house versus an apartment, you need to figure out two things: 1) how many people you’ll be living with, and 2) where you’ll be living. Once you nail that down, do some research and see which option is the most affordable. It all depends on your individual situation.

What Can I Do to Afford My Monthly Rent?

You may have heard that 25% rule and thought, Rent here is so expensive! There’s no way I can keep my rent that low! If you did, don’t worry—there are ways to offset crazy high rent prices. Here are six tips to help you figure out how to afford rent and keep it from eating away at your budget.

1. Get Roommates

If you’re not making a lot of money (or you just don’t want to pay a boatload for rent each month), it’s time to get a roommate. The idea of living with a roommate may give you some painful flashbacks to college, but you won’t have to step over week-old pizza boxes on the living room floor this time around.

You’re a grown-up now, and you can room with another grown-up. Think of it as like-minded people in the same phase of life wanting to save money by sharing a living space. No lava lamps or Star Wars posters or Iron Man helmets required.

2. Rent a Room Instead of an Apartment

Believe it or not, a lot of homeowners are looking to rent out a spare bedroom or an unused bonus room. Sure, you might not have free rein to kick off your shoes and put your feet up on the living room table, but you’d still have your own bedroom and (maybe) bathroom. And if the rent is super cheap—who can complain, really?

3. Increase Your Income

It turns out the answer to “How much rent can I afford?” will be different if you make more money. Up your income and you can afford more, right?

The good news is, there are plenty of ways to increase your income these days, and some of them are actually pretty easy. There are pizzas that need delivering, folks who need to be driven all around town, and stuff that needs to be sold. So, what are you waiting for?

4. Find a Cheaper Location 

The cost of rent mostly depends on where you live, so if you can’t afford the housing market in the heart of the city, start looking in the suburbs or farther out from the big metro hubs. You might have a longer commute, but the savings for living 30 miles south could be huge.

5. Get a Higher-Paying Job

Keep in mind that the cost of rent is only going to go in one direction: up. To stay on top of it, your income should be going in the same direction too. If you know you can count on a pay raise each year, great. But the truth is, you might need a higher-paying job altogether to make things work. Get out your budget and see how a higher income would change things.

6. Compare Insurance Rates

We get it—insurance can seem boring and complicated. But you may be overpaying for your coverage, and you could save some serious money by working with an independent agent who can shop rates from multiple insurance providers. Our RamseyTrusted insurance pros fit that bill, and they can help you make the best decision for you and your family.

Don’t Forget About Renters Insurance

As a renter, you don’t have to worry about paying for things that go wrong with your rental. That’s the beauty of not owning the place! But there’s one extra cost you should plan for when renting: renters insurance. Having a rental insurance policy will protect you financially if your belongings are lost or damaged in a catastrophe like a fire, storm or robbery. Don’t count on your landlord’s insurance—that usually only protects their property.

Renters insurance is pretty cheap, so there’s really no excuse not to have it. If you need coverage, reach out to a trusted agent for advice.

Saving for a House While Renting

If you’re debt-free with a full emergency fund and you want to kiss renting goodbye by buying a house, you need a strong down payment. How much should you put down? Ideally, you should put down 20% of your home’s total value, since that’ll keep you from having to pay private mortgage insurance (PMI). As a first-time home buyer, a 5–10% down payment is okay, but get ready to pay that PMI.

But how in the world am I supposed to save a down payment while renting? Here’s the thing: It might be easier than you think thanks to our favorite B-word: a budget.

If you’ve never sat down and made a budget at the beginning of the month by planning what to do with every single dollar you take home, we have some bad news: You’ve probably been letting a whole lot of money go to waste without even knowing it. That’s what happens when you don’t tell your money where to go—you end up wondering where it went.

So, it’s time to get going! Write down your income, list your expenses, and subtract your income from your expenses. (Your income minus your expenses should be zero—that’s called a zero-based budget.) Then, track your spending throughout the month to make sure you’re staying on track.

The best way to get started with budgeting is downloading the free EveryDollar app. It will guide you through the process of making a budget so you can get started on your savings goals super fast.

Download EveryDollar today!

What about the 50/30/20 rule?

Some people recommend the 50/30/20 rule (50% for needs, 30% for wants and 20% for savings) for budgeting. But that way of thinking won’t give you the flexibility or focus you need to accomplish big money goals like saving for a house.

A budget is never one-size-fits-all. Everyone’s financial situation is different, and each month presents unique needs that your budget will have to address. For example, your budget should definitely change if you decide to start saving for a car, paying off debt or putting money aside for your kids’ college.

That’s why making a new zero-based budget each month is the best system.

Serious budgeting is hard at first. But here’s the good news: When you put in the work, you’ll be well on your way to building a strong down payment, and you’ll even make it easier to afford the rent you’re currently paying.