Working out how much rent you are able to pay should be straightforward, but it’s easy to overlook things and not count them in your budget for rent. Don’t get into unexpected costs, let’s go through the various methods you require to keep in your mind while calculating how much you could spend on rent.
The 30% Rule
A very famous rule is present in which you have to spend around 30% of your total income on rent. So if you earn £2,800 per month before taxes, you should spend about £840 per month on rent. This is a guideline, but one-size- doesn’t fit all.
For example, if you used to live in an area which is affordable for you, you shouldn’t pass up a place that’s £600 per month because it’s only 21% of your income. But on the other hand, following this rule of spending 30% on rent isn’t always workable in the larger cities, in these cities you have to spend at least 50% of your gross income on rent. Don’t miss out! Check our previously published article on Should i give my Salary to my Parents?
The 50/30/20 Rule
You can also use the 50/30/20 budget as a guide to work out how much you can afford to spend on rent. This method assigns your basic pay after the deductions of taxes to 50% for needs, 30% for wants and 20% for the saving purposes and some extra debt payments.
So if you earn £2,800 per month after taxes, you’d split your pay up like below:
- £1,400 for your basic expenses – you have to cover all the day to day expenses including rent, utilities, food, travel, child care, insurance etc.
- £840 for wants – these are the extras that aren’t essential to living and working like shopping, entertainment and meals out.
- £560 for savings & additional debt payments – This is the money you keep aside for paying additional debt or save for the future
Check your Tenancy agreement
Check your property agreement if you have to pay for the other costs. Some tenancy agreements say that you need to maintain the garden – so you will require the tools, or a gardening service. Be sure about which bills are your responsibility and which are paid by the landlord.
If you are living with your friends or a partner, then have a clear and frank discussion on the topic of who will be contributing how much and what to the bills. Nevertheless, if you have signed a sole tenancy agreement, you are liable for all the bills, whether or not your flat mate stumps up. Have you seen it yet? Check our previously published article on How does salary pay work if you miss a day?
If you have agreed as joint tenants, everyone whose name is written on the agreement is responsible for the rent and bills, even if they move out during the term mentioned in the agreement. But be aware that if the tenancy terms state ‘joint and several liability’, and one of your fellow tenants moves out, the landlord could chase you for any missing bills or rent.
Look for savings
If your affordability doesn’t match with the rental market in your area, check for the ways to cut costs from your other expenses. Look at the spending which is not so important to free up some budget, but many times you can look for the savings from your essential expenses, too.
- Utilities: Energy bills take up a huge share of your living day to day budget, so try to take the best available deal to avoid extra spendings.
- Groceries: Try to make a habit of planning your meals and use vouchers to increase your food budget and save money from there.
- Rent: Don’t leave alone because it will increase your burden to pay all the rent by yourself. To prevent this, search for a roommate and divide the cost of the rents and other common expenses.
Is it OK to spend half of your salary on rent?
To spend half of your salary on rent depends on your personal financial situation. If you’re earning a good amount of money and have least other expenses, maybe you can handle it. But for most of the citizens, spending half of their income on rent doesn’t leave enough money for other basic expenses of day to day life such as food, transportation, savings, and some extra fun.
Most financial experts suggest aiming for about 30% of your income to go toward rent. This method will balance your budget and provide you a little more peace of mind than any other method. For more information, check our previously published article on Is it Commonplace to take a Pay Cut when going to Salary?
How much rent can I afford?
You have to calculate your monthly budget before knowing how much rent you can afford. A budget helps you know where your money is going; then, make a plan of where you want it to go.
Make a note of your expenses like everything you spend on monthly and the amounts. Categorize them into needs, wants and savings. Use a rent budget calculator to know if your current savings align properly with your financial goals or not.
The general rule is to spend 30% of your income on rent. However, although it works for many renters, it is not the ideal percentage for everyone. Also, understand that besides your monthly rent payments, you’ll need to spend on other costs like utilities, transport, and health. Looking for more insights? Check our previously published article on Should i pay myself a salary from my llc.
Frequently Asked Questions
The best salary to rent ratio is generally, assigning 30% of your net income into rent. While working out your salary-to-rent ratio or percentage, don’t forget to include your total income before tax deductions.
The 50-30-20 rule is a very famous rule that says put 50% of your income for the purpose of basic needs, 30% for the wants, and save the remaining 20% money.
You should save a minimum 20% of your total income. And remaining money you can use in rent and other expenses of day to day life.
Conclusion
Keep in mind that before thinking about moving to a new place, your finances are a priority. Renting is an important financial expense that affects the rest of the basic expenses of your life. Also, understand that it goes beyond your monthly rental payments as there are other expenses to think about.
Therefore, follow the 50/30/20 rule properly to make a good balance between your rent, savant and other expenses. Have a look on: how does salary pay work?
