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I'm a 27 year old single guy making 71k, no debt, and 20k in savings.
I live in the dc area where the cost of living is high. I found an apartment for $1600 that I really like and just a 10 minute drive from work.
Will I be able to afford this?
That's a little too high, IMO. You want your rent to be less than 25% of your gross income. The rent for this is 27% of your gross. A lot of times rent increases outpace incomes, so I wouldn't do it, unless you can negotiate them down $100 a month.
The general rule of thumb used by landlords as to whether there is a material risk of you not being able to swing rent is as people have mentioned above, 30% of gross income or salary / 40. So from that rule of thumb you can 'afford' up to $1,775 before making the LL nervous about your ability to pay..
The key phrase here is "rule of thumb used by landlords". Landlords don't care if you have minimal or no retirement savings. They don't care if you can't afford to do anything else that's fun. They don't care if you can't save for a down payment on a house. They don't care if you're stressed out because you're living payday to payday--or close to it. They also don't care if your income isn't keeping pace with their rent increases.
The 30% of income rule is a rule that benefits THEM. It's what they consider to be the maximum they can squeeze out of you without you coming up short on rent.
I don't know what landlords use, but the 30% figure is a common measure of affordability by the FHA and others.
It's a blunt instrument of course. Obviously other factors play a huge role, like debt, kids, transportation costs, etc. It assumes a typical case (I don't know the equation) for those things. If you spent less than typical on those things, you can afford more for housing. An vice versa.
One more time: do NOT use gross income for any budget expense calculation.
Maybe for savings... but nothing else.
You get to decide what might be deducted from your wages (beyond taxes etc).
Some of those things might be pleasant (IRA? 401K?) and some not (garnishment).
Some will be pre-tax and some after tax. And everyone is different.
But until you've settled on all of these calculations... you don't have a number to be budgeted.
When you do budget use a number that allows you to have a future.
That FIXED NET number will allow you to enjoy the present as well.
===
What disturbs me in these threads is the WILLINGNESS some seem to have to throw away money.
And how EAGER they are to see everyone else commit to that same sort of stupidity.
And NO... the area you live in really doesn't come into play.
One more time: do NOT use gross income for any budget expense calculation.
Maybe for savings... but nothing else.
You get to decide what might be deducted from your wages (beyond taxes etc).
Some of those things might be pleasant (IRA? 401K?) and some not (garnishment).
Some will be pre-tax and some after tax. And everyone is different.
But until you've settled on all of these calculations... you don't have a number to be budgeted.
When you do budget use a number that allows you to have a future.
That FIXED NET number will allow you to enjoy the present as well.
===
What disturbs me in these threads is the WILLINGNESS some seem to have to throw away money.
And how EAGER they are to see everyone else commit to that same sort of stupidity.
And NO... the area you live in really doesn't come into play.
MrRational gives some good advice here.
If you're smart enough to make 71k and save 20k then you know we need to see your budget *and* we need to know a lot more about what your goals are for the future. Can you afford it? Well yeah sure if your definition of afford is "do you make enough money right now to cover the rent".
Here's a sample budget based on you bringing home 4500 net a month (just a guess-don't know what you're netting):
100travel500mid term savings (about 8% of gross)1600rent300groceries and household goods200shopping (clothing, dating, hobbies/going out)300utilities (electric, water, cable/internet)75cell1125long term and retirement savings (about 19% of gross)300transportation
The above zeros out to 4500 a month. Sure I'm probably missing a few things. But you need to get a budget together to see if paying 1600 in rent fits into *your* lifestyle and goals.
I've included about 27% of your gross income going to mid/long terms savings above. (To me mid term savings could be home down payment, car purchase, engagement ring/wedding, huge trip somewhere for some big occasion, etc. etc. Long term savings to me = retirement which is best to put in as much as you can right now while you're still young.)
*Do you make frequent trips home? How much does that does that cost you? Adjust budget.
*Do you need 60k for a 20% down payment on a place within the next 5 years? Mid terms savings 'might' need to be adjusted up.
*Are you spending 600/month partying it up and eating/drinking out with friends in D.C.? Above numbers won't cut it. (Although 600/month partying would not be wise in many people's opinion.)
We don't know if you can afford it. I know next to nothing about D.C. but 1600 doesn't sound outrageous. But obviously the more you spend in rent the less you'll have to contribute to other things that may or may be more important to you...we don't know what those things are as you haven't mentioned any mid or long term goals that need to be accounted for in your budget. We also don't know your employment history, job industry and if you're in a stable career field. If there are reasonable apartment alternatives that go for say 1300 a month that's a decent amount of savings and I would seriously consider that. Also do you really need a car where you live? Just some things to think about.
I was paying just a little under 1600 when I made 80k-ish in a large city as well. I didn't have a car and got around via Lyft, train, etc. etc. I must say that for me however, once I saw just how much of one of the 2 paychecks had to go to housing related costs (rent, electric, water/sewer/trash, rental insurance, cable/internet at home) it was a bit of a shocker and because rent prices were only going to go UP each year (my apartment now goes for closer to 1800 (!), I ended up moving to another city paying a bit lower housing related costs.
Thanks for the advice everyone! After reading the responses, I've been looking at cheaper apartments.
I guess I should have included more information about myself and my future goals in the opening post.
- I plan on buying a 200-250k condo in my early 30s, so I'm working on saving up for a %15-20 down payment.
- I don't plan on having kids in the future.
- I work in the public sector, so my job is relatively stable.
- Where I work is not easily accessible by public transportation, so I plan on keeping my car.
- My friends and I don't really spend much on going out. We usually stay in for movies, board games, video games, etc.
- I've done a lot of traveling in my early 20s. I don't anticipate another big trip anytime soon.
Thanks for the advice everyone! After reading the responses, I've been looking at cheaper apartments.
I guess I should have included more information about myself and my future goals in the opening post.
- I plan on buying a 200-250k condo in my early 30s, so I'm working on saving up for a %15-20 down payment.
If you really want your own place with a good down payment, rent for as cheap as you can tolerate. I'm not saying live in a miserable place or a bad area, but just keep it really basic.
I think looking at cheaper apartments is a wise idea.
One more time: do NOT use gross income for any budget expense calculation.
Maybe for savings... but nothing else.
You get to decide what might be deducted from your wages (beyond taxes etc).
Some of those things might be pleasant (IRA? 401K?) and some not (garnishment).
Some will be pre-tax and some after tax. And everyone is different.
But until you've settled on all of these calculations... you don't have a number to be budgeted.
When you do budget use a number that allows you to have a future.
That FIXED NET number will allow you to enjoy the present as well.
===
What disturbs me in these threads is the WILLINGNESS some seem to have to throw away money.
And how EAGER they are to see everyone else commit to that same sort of stupidity.
And NO... the area you live in really doesn't come into play.
This is the big point.
My net is 56% of gross. It sucks being direct deposited half of what I make. I don't see my 401k, roth, HSA, and other deductions today, but I still have them.
I am not cash rich because I make the most of what my company and the current market offers.
What disturbs me in these threads is the WILLINGNESS some seem to have to throw away money.
And how EAGER they are to see everyone else commit to that same sort of stupidity.
Yes, I feel the same way. It shocks me at how people so eagerly sign up for their own enslavement (not saying the OP is, just in general).
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