While it may seem logical to base your rental budget on your salary, the reality turns out to be a little more complex. The conventional "40 times rent" rule, stating that your annual salary should be 40 times your monthly rent, often gives an unrealistic figure, especially when your pre-tax income is $50,000.
Suppose you follow the rule; it means with a $50,000 salary, you're qualified for a rent of $1,250. However, this rule overlooks the fact that the calculation is based on your gross income - your pay before taxes and other deductions. Your actual income to spend - the take-home pay - unsurprisingly, turns out to be less.
An even bigger catch with the "40 times rent" rule is its general applicability. It doesn’t account for your unique financial situation or calculate your specific expenses. It just assumes that spending one-fortieth of your earnings on rent should leave you with enough to cover all your other obligations.
If you're facing alleged discrimination when renting due to factors such as race, religion, gender, marital status, public assistance use, national origin, disability, or age, know that this is against the law. Don't hesitate to report it to the Consumer Financial Protection Bureau or the U.S. Department of Housing and Urban Development (HUD).
Drawing upon a more realistic guideline is advisable - spend roughly 30% of your take-home pay on rent, considering your deductions for taxes, retirement, and others. For instance, if you get around $3,500 monthly after taxes from your $50,000 salary, your rent shouldn't surpass $1,050.
It's also essential to keep in mind your specific expenses, making a budget indispensable, especially if you're in a city with a high cost of living. The "30% rent" rule or an approach anchored in your budget can be a more reliable guide.
To get a more accurate figure on the rent you can afford, begin by calculating your actual monthly expenditure and then subtract it from your monthly take-home salary. This calculation might be more time-consuming but ensures you that you don't run out of money unexpectedly, unable to cover your bills.
Account for your utilities, like water, sewerage, trash/electricity, cable, internet, telephone, and sometimes security and maintenance in certain housing complexes. The costs for electricity or gas can depend on the condition of the property and its insulation, so asking the landlord or current residents about utility costs is a prudent move.
Don't forget to account in your expenses for groceries and other regular household supplies. If you're doing this for the first time, a bit of planning can make a difference. Account for your transportation costs too and any debt repayments. Include staples like renter's insurance in your budget as such protections aren't provided by your landlord.
Your 401(k) or other retirement plan contributions are pre-deducted from your pay; you don’t need to account for them. But you should consider any savings that you subtract from your take-home pay.
Ensure to consider discretionary expenses, too: clothing purchases, dining out, gym memberships, and hobbies. This is the most flexible element of your budget and can be adjusted as needed.
After the tally, what's left from your take-home pay after deducting your budget total becomes what you should aim to pay for rent. If it's on the smaller side for local rentals, you may want to revisit your discretionary spending or consider moving to a more affordable locale or sharing a lodging with roommates.
You can always use rental search sites, such as apartments.com and rentable.co, to gain an idea of available properties within your budget. A crucial step is aligning rental decisions with your personal priorities. If retirement investing or saving for a future expense is important, it could be worthwhile to lower your housing expectations and channel more resources into what you value more.