Finding the right place to rent can be a challenge. You want something nice in a good neighborhood that fits your budget – but with rising rental costs, it can be tough to know what’s realistically affordable.

So, how much should you spend on rent? Generally, experts recommend spending no more than 30% of monthly pre-tax income on housing. However, it’s not always that simple.

According to the U.S. Census Bureau, between 2017 and 2021, over 40% of renter households (19 million) spent more than 30% of their income on rent[1]. Moreover, nearly a third of the country’s renters live in counties where the median housing cost is more than 30% of the median household income.

When deciding how much of your income should go to rent, it’s important to understand the various methods for calculating personal spending thresholds. You’ll also need to weigh other factors like location, lifestyle, and additional housing costs.

The following guide explains how to calculate gross income, how the 50/30/20 rule applies to rent, and some situations when spending more than 30% might make sense. With this information, you can make informed, confident rental decisions.

Determining Personal Rent Affordability

Deciding how much you should pay for rent isn't always a straightforward calculation. Going above the recommended threshold of 30% of your gross monthly income can make it harder to cover other expenses and meet savings goals. However, personal rent affordability can vary depending on a range of factors such as overall budget, outstanding debt, geographic location, and other housing-related costs.

Taking a close look at personal finances can help determine how much rent you can pay without creating financial strain. The process involves analyzing your income, expenses, and savings targets to determine the maximum amount available for housing.

How To Calculate 30% Of Your Gross Income For Rent

Gross income equals earnings before taxes or deductions. To find this number, review your paycheck and look for the line labeled “gross pay.”

  • If you are paid every two weeks: Multiply the gross pay amount by 26 to calculate annual gross pay. Then, divide the annual number by 12 to determine the average monthly gross income.
  • If you are paid twice per month: Multiply the gross pay amount by two to determine monthly gross income.
  • If you are paid monthly: Use the gross pay amount listed on your paycheck.

To calculate 30% of monthly gross income, multiply the above amount by 0.3. For example:

Monthly Gross Income: $5,000
30% of $5,000: $5,000 x 0.3 = $1,500

According to the 30% rule, a person earning $5,000 gross per month could reasonably afford to spend $1,500 per month on rent. However, it’s important to remember that this is only a guideline. For example, if you live in an area where average rents are higher than your 30% threshold and relocating is not an option, it may be necessary to allocate a larger portion of income to housing.

On the other hand, spending 30% of income on rent could create an excessive strain on your budget. In this case, lowering rental costs may be necessary to free up income for other expenses.

When Spending More Than 30% On Rent Might Make Sense

Depending on your circumstances and goals, choosing a home with rent costs that exceed the 30% guideline may make sense. Some potential benefits of paying higher rents include:

  • Reduced commuting costs: Choosing a more expensive apartment that's closer to work or school can save time and transportation costs.
  • Safety and security: Prioritizing a safer neighborhood can give you peace of mind, even if it means spending more on rent.
  • Quality of life: A location that significantly enhances quality of life, such as being close to nature, cultural venues, or social opportunities, may be worth the extra money.
  • Unique amenities: An apartment that offers unique amenities may help save money elsewhere. For example, a rental with gym access or utilities included can offset the higher rent.

Tips To Budget For Higher Rent Costs

When higher rental costs are justified, it may be necessary to make other budget adjustments. The following tips may help you cover your rent costs when they exceed the recommended 30% threshold.

1. Split Costs With A Roommate

Sharing rental costs with a roommate can help you afford a nicer living space without going too far over budget. Often, sharing the costs of a two- or three-bedroom rental with others reduces each individual's overall housing expense. Consider using Zelle® to easily split rental costs without extra fees. 

2. Cut Back On Other Expenses

Monitoring spending can often help you identify areas with room to cut back. Reducing discretionary spending such as eating out, shopping, or entertainment can create room in your budget for higher rental costs.

3. Pay Down Outstanding Debts

Allocating a larger portion of your budget to paying down credit cards, auto loans, and other debts can help you eliminate them faster. Once they're paid off, you can apply the extra cash to rent payments. Depending on your situation, debt consolidation or refinancing may help lower monthly payments right away, making room in your budget for higher rent payments. 

4. Increase Income

Consider increasing your income by asking for a raise or promotion, taking on a second job, or doing freelance or gig work. Selling items you no longer use can also create a short-term cash infusion.

The 50/30/20 Rule

If the 30% rule doesn’t work for you, consider the 50/30/20 rule. This guideline offers a broader budgeting framework, dividing monthly after-tax income into three spending categories:

  • Essential expenses — 50%
  • Non-essential expenses — 30%
  • Savings — 20%

It begins with allocating approximately 50% of your net monthly income to essential expenses, such as rent, groceries, utilities, insurance, required minimum debt payments, and transportation. Discretionary spending, such as dining out, entertainment, travel, and hobbies, accounts for approximately 30% of net income, while the remaining 20% is allocated to savings and debt payments above the required minimum.

The 50/30/20 is effective because it creates a balance between financial obligations, lifestyle, and building wealth. Categorizing expenses this way allows you to fund needs and wants while also allowing for savings and extra debt payments, avoiding the cycle of living paycheck to paycheck.

Applying The 50/30/20 Rule To Rent

When asking, “How much should I pay for rent?” it’s often helpful to examine rental costs in relation to other financial obligations.  Unlike the 30% rule, the 50/30/20 rule is based on percentages of your net, or after-tax, income. 

For example, assume your gross monthly income is $4,500 and monthly rent is $1,400. This amount exceeds 30% of gross income. However, if your net monthly income is $4,000, based on the 50/30/20 guideline, you can spend:

  • $2,000 (50%) for essential expenses
  • $1,200 (30%) for lifestyle wants
  • $800 (20%) for savings and extra debt payments

Assuming the remaining essential expenses are less than or equal to $600 ($2,000 minus $1,400), you may be able to cover the rent without unnecessary strain. However, if it stresses your budget, lowering rent expenditure could create more room to cover monthly financial obligations.

Additional Costs Beyond Monthly Rent

While rent often makes up the largest portion of housing costs, there are typically other expenses to consider. As you analyze how much of your salary should go to rent, be sure to factor in the following expenses:

Security Deposits

Many landlords require a security deposit, often equal to one to two months’ rent, which must be paid upfront when you sign the lease. For a $1,000/month apartment, this means having an additional $2,000 to $3,000 ready when moving day comes.

Saving up for this large upfront cost in advance can help avoid over-stressing your budget. Consider setting up automatic transfers to a designated savings account six to 12 months before a move so you can cover the cost over time rather than deplete emergency funds.

Renters Insurance

Many landlords and property management agencies mandate renters insurance as part of the rental agreement. Renters insurance coverage provides valuable protection for your belongings in the event of incidents such as theft or flooding. It also offers liability coverage if someone is injured in your unit.

Since renters insurance does not cover the structure of the building, the costs are significantly lower than a traditional homeowner’s insurance policy. Standard renter’s insurance plans cost an average of $15 to $30 per month, though many factors go into determining the cost of coverage, and your plan may differ[2].

Utility Costs

If utilities such as electricity, water, and garbage pick-up are not included in the rent, these expenses must be added to the housing budget. The cost of utilities is often a surprise to new renters, particularly in older apartments with poor insulation or inefficient appliances. When exploring rental options, ask for the space’s average utility costs. This will help avoid sticker shock and allow you to add a realistic estimate to your housing budget.

Moving Costs

Don’t underestimate the cost of moving into a new rental space. Hiring movers, renting moving vans, replacing old furniture, and other moving-related expenditures can quickly add up. Whether you plan to spend a few hundred or a few thousand dollars on the move, saving as much as possible ahead of time can help reduce financial strain. This may require allocating more than 20% to savings during the months preceding the move, and doing so may require cutting back on non-essential spending.

Final Thoughts On Rent Affordability And Financial Health

The answer to the question “How much should you spend on rent?” isn’t always simple. While basing rental spending on guidelines like 30% of gross income or the 50/30/20 rule can help you get started, many variables go into determining what percentage of income should go to rent.

Carefully weighing factors such as your current financial status, outstanding debts, geographic location, and lifestyle needs will help you make informed tradeoffs between costs and desirability.

Taking the time to calculate housing expenses, compare them to earnings, and define rental home must-haves will help determine pricing parameters grounded in reality rather than percentages. This process will provide clarity so you can align your housing spending with longer-term financial goals.