Everyone dreams of growing up and buying their own house one day. You might say to yourself that you won’t feel like an adult or even feel successful until you have your own place that you can call your own.
I get it. I have that dream too.
But for now, my husband and I are nowhere near ready to buy a house – not when he’s still in school and doesn’t have a big paycheck as a social worker.
So, like us, maybe you’ve decided to rent. How much should you be spending and what other expenses should you keep in mind?
Follow the three steps outlined below if you want to be able to rent with cash to spare.
#1 Calculating Expenses
This is the very first thing I do when we are looking to rent or change our finances at all. You have to find out how much you are already spending per month before knowing how much you have to spend!
Call me crazy, but I like sitting down with our bank account and a calculator in front of me, totalling up our spending. There’s something freeing about being in charge of your money.
You can do this several ways, but I like to make a list of categories we use often:
- Insurance (car, renters, etc)
- Subscription Services (Netflix, Amazon, Hulu, etc)
- Charitable Donations Extra (it’s always good to have a buffer amount for rainy days)
Then, as I go through our bank account, I will fill in the amount we spent in each category.
- Insurance: $10
- Gas: $120
- Groceries: $150
- Savings: $500
- Extra: $50
I will typically go through the past 2-3 months as well to see what the difference was between each month. That should give you a good basis to start from.
#2 Determining Expenses vs. Income
Do you have a budget and do you look at it often? Or do you spend money assuming that it will all work out in the end?
Before you can think about having enough to rent an apartment, you have to make sure that you are living within your means. That signifies that you spend less than you make a month.
Example: If you make $5000 a month, but you spend $6000, that will put you into debt and that’s what we’re trying to avoid!
However, if you make $5000 a month, but you only spend $2000, you have a lot left over that you can save. That difference in money can make or break the way you live.
#3 Find Your Renting Number
Now is the juicy part: finding out exactly how much you can spend on rent.
Dave Ramsey, a financial advisor and author of The Total Money Makeover, claims you should spend no more than 25% on your rent a month. This is very good advice and a great place to start from.
The reason I believe you should start from the outside in though, is because what if after you calculate your monthly expenses, you don’t even have 25% left? Then what?
Example: 25% of $5000 is $1250. However, you could be spending $4000 a month on regular expenses and not have enough for rent.
It’s easier to remove unnecessary expenses if you see them written out clearly. That way you can make an educated decision on what you even use in the first place.
If you really do want to rent or improve your current living situation, you might have to cut certain things out. Do you need Netflix and Hulu? Probably not. Could you try cooking more homemade meals rather than eating out? Definitely.
On the flip side, you may have a higher income and can afford to spend more on rent if you want. It’s all about your own personal accounts.
I hope this article was helpful to you in finding a good rental price!
Comment below and tell us if you have any secrets to how much you spend or finding good deals on rental locations.