Budgeting Tips: How Much to Spend on Rent

Creating a rental budget requires a certain amount of finesse. First, you need to know your net take-home income and other essential expenses. Once you have a clear understanding of your income versus monthly expenses, you can determine how much to spend on rent. 

Whether you’re moving into your first rental home or you’re a seasoned pro, knowing exactly how much to spend on rent can make it easier to find the perfect spot in your desired neighborhood. These budgeting tips will help you get started. 

Calculate your net income and living expenses

Your net income is how much you take home after taxes and other payroll deductions, such as 401k contributions and health insurance premiums. Check your paycheck stubs or direct deposits and make a note of how much you earn each month. This is your monthly net income. 

Next, take a look at your monthly living expenses. Add up how much you spend each month on essential living expenses, including: 

• Electric, gas, water, and garbage utilities
• Internet, cable, and phone bills 
• Health, renters, and auto insurance 
• Groceries 

If you’re not sure how much utilities will cost in your new neighborhood, research online and ask the property manager if utilities are included in the rent so that you can create a ballpark estimate. Knowing your monthly expenses will help you set a realistic rent budget. 

Determine how much to spend on rent

The 50/30/20 rule is a good place to start when budgeting for rent. By this rule, you spend 50% of your take-home income on rent, groceries, and utilities, 30% on discretionary expenses like clothes, subscriptions, and activities, and 20% on savings or debt payments. Within this framework, aim to spend about 30% of your total income on rent. 

For example, let’s say your monthly net income is $4,000. In this case, you can plan to spend $1,200/mo on rent, $800/mo on other essential living expenses, $1,200 on discretionary expenses, and $800 on debt payments or savings. You can also use an online rent calculator like Zillow to see how different rent allocations affect your monthly allowance. 

If you plan to live alone, you’ll want to find a rental that fits your budget exactly. But if you have a significant other or roommates pitching in on rent, add their budgets to your monthly total and you can afford a bigger home that suits everyone’s needs. 

Set up an account for your rent budget 

The key is to set a realistic rental budget that ensures you’re able to pay on time each month. Practicing responsible money habits can help boost your credit score and show future landlords and lenders that you manage financial commitments well. 

Having a dedicated account for your essential expenses, including rent, is an excellent way to ensure you have the funds when you need them. With DEXSTA Federal Credit Union, you can easily set up an account to deposit your paychecks, automatically transfer money to savings, and make rent payments on time.