How much should you spend on rent based on your earnings? The popular rule of thumb is to spend no more than 30% of your income on rent. However, this is not a one size fits all situation. How much you pay on rent is dependent on a lot of factors. If you live in a city the rent rates might be much higher than in the countryside and rural areas.
Here are factors you should consider when determining how much you should spend on rent.
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Factor in all other costs and expenses as you determine how much you should pay on rent. Expenses to consider as you determine how much you should spend on rent include utility bills like electricity and water, food, transport to and from work, and leisure activities. Just because it’s cheaper to live out of town does not mean that you will necessarily save. You might be spending more on your commute to work than living in town making it more expensive to live out of town. Consider every factor before deciding where to rent.
How much are you looking to save per month? If your rent does not align with your savings goal, then you should look for a much cheaper place to live in. Don’t forget your savings goals just to pay your rent. Follow the 50/30/20 budget rule to help keep things in perspective. Savings accounts are essential and come in handy as a great fallback plan. When deciding on your rent you should always make sure you’ll have money left to save.
When determining how much you should spend on rent, consider how much debt you have as well. If you have student loans, car loans, or personal loans you should consider these as well. Your rent should give you enough leeway to pay your debts comfortably. If you spend too much money on rent you will strain to pay your debts. This can cause you to go into more debt or earn high interest on your loans due to late payments.
As you determine how much you should spend on rent, you should consider your income. Determine if it’s cheaper to look for a long-term lease or a month-on-month rental based on your income. If you have a source of income that’s not steady, month on month works great. Consider starting a side hustle to make extra income so you don’t have to struggle with your finances.
Everyone has their own standard of how they expect to live. If you love luxury, you will go to high-end areas where rent is much higher than in other areas. Some towns are also generally much more expensive than others. Where you live and your living standards will definitely impact what you will pay as rent. Consider living with a roommate if the cost of rent is too high. This will help save on costs.
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This is a factor you should consider as well. If you have kids and pets your preferred living arrangement might be a townhouse or a mansion or a bungalow with a compound. If you prefer to live in the city center you might prefer apartments. There are several living arrangements to consider based on your preference.
These are the factors to consider when paying rent. You don’t have to follow the 30% rule of thumb. Set your own financial goals and go with what works for you.
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