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I always hear and read that rent should be about 25-30% of your income or less ideally. Does this apply to your gross or net income? I make about $2500 a month before taxes, is this what my rent should be 25-30% of?
I always hear and read that rent should be about 25-30% of your income or less ideally. Does this apply to your gross or net income? I make about $2500 a month before taxes, is this what my rent should be 25-30% of?
I agree that it should be based on your net income. Personally, I'd suggest making a budget instead. That 25% rule isn't necessarily bad advice, but it's more of a ballpark suggestion and isn't appropriate for everyone. List your income(s) and expenses, and you'll be able to forecast how much you should be able to afford in rent. For example:
$2500 - Gross income
-----
$500 - state, local, and federal taxes (a guesstimate at 20%)
$150 - Retirement / pension / 401(k) / etc (guesstimate, 6%)
$250 - health insurance (guesstimate, 10%)
=====
$1600 - actual net
$120 - fuel ($30 / wk)
$300 - car payment
$40 - car insurance
$160 - food ($40 / wk, assuming you can eat thriftily)
$30 - wireless (assuming you're on a cheap carrier like Virgin Mobile or Straight Talk)
$50 - clothing
$200 - spending money (social events, entertainment, home furnishings, repairs, etc)
$125 - into savings
=====
$575 - total left over for rent, utilities, renters insurance, and "etc"
All of these figures were pulled entirely out of thin air, so you should replace them with your actual numbers. Don't forget to add any additional expenses (student loans, child support, etc) that you may have. And take your entire financial picture into consideration -- if you have six figures sitting in savings, you can afford to consume more of your budget with rent.
I have often heard of the 1/3 rule, although in my area I think its often referred to gross.
My current rent is 38% of my net. I live in NYC, and I am pretty sure this is below average for here.
I have often heard of the 1/3 rule, although in my area I think its often referred to gross.
My current rent is 38% of my net. I live in NYC, and I am pretty sure this is below average for here.
That's about what it is here, too. Last I heard for my area, average wage was around $22,000 a year gross, but average rental for a 1 bedroom was $1100 a month. I think it's ideal to only spend 25% of your income, but sometimes that's difficult.
I live in the DC area and there is no way many, many people can make the 25-30% as "suggested". After taxes, savings, retirement, insurance etc... I pay almost 45% of take home. It is crazy to think the low percentages pertain to anything but small town, almost rural areas.
I live in the DC area and there is no way many, many people can make the 25-30% as "suggested".
After payroll taxes...
and some other debt payments (car loan, credit card etc)...
and the legally obligated like child support.
Quote:
savings, retirement, insurance etc...
...are another matter entirely and come AFTER the rent is paid.
---
As for NYC or SF and other high dollar rent areas...
the "premium" paid above the ratio's comes out of other budget categories
but don't fool yourselves by calling it "cost of living". It isn't.
But in expensive areas, such as Long Island where I am, it gets tougher when a 1 bedroom goes for $1300-1500/month. The problem is salaries haven't kept up with the increasing cost of living.
NYC people have it worse though!
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