How Much Should You Pay For Rent

A recent study by Redfin (Redfin.com) found that on average, the typical home costs 25% more to buy than rent in the 50 largest metros in the United States. With that data, it’s no surprise that so many people are making the choice to rent instead of buy. While Wichita, or any other city in Kansas wasn’t mentioned in the article, it’s easy to see that renting is a popular choice in our own metro.

With snazzy new apartment complexes and duplexes popping up on nearly every corner, there isn’t a shortage of options if you are looking to rent. Maybe you’re fresh out of school, ready to take the leap and get your own place, or perhaps you’re already renting – either way it’s important to make sure that you aren’t paying too much for rent.

Yes, renting is easier and more accessible than buying a home, but there is still much to plan for and consider when it comes to renting. At the top of that list is knowing how much you should actually spend on rent to ensure that you don’t look at places that are outside of what you can afford, and you don’t go broke while renting.

A quick search online gives you consistent results - your rent payment should not exceed 30% of your gross monthly income. According to Chase.com, this has been the case since 1981 when a study done by the government found that people who spent over 30% of their income on housing were “cost-burdened” and “may have difficulty affording necessities.” (Chase.com) And this rule still holds true today.

So “gross income,” what is that? Your gross income is the amount on your paycheck before your taxes, insurance, and any other deductions come out. The amount left over after your deductions is your “net income.” There is a major difference between the two and making sure that you are using the right number in the right place is very important. For more information, check out this article by SmartAsset: Gross vs. Net Income: How Do They Differ?

Now back to that 30% gross income as a max for your rent payment. Here’s how you can easily determine what this 30% of your gross income amount is:

1. Calculate your gross pay for the month by adding up the numbers from your “gross pay” column on your paychecks, for all the paychecks you got in a month. That’s your total gross pay for one month.
2. Take that total gross pay multiplied (x) by 0.3.
3. Now move the decimal to the right two places, also known as multiplying by 100. That’s 30% of your total gross pay.

(Total Gross Pay for the Month x 0.3) x 100 = 30% Of Total Gross Pay

Some caveats to this:

• If your pay fluctuates significantly from week to week, you’ll want to determine the average of your gross pay instead of the total.
• Calculate this number by adding up the gross pay from all the paychecks for at least the last 6 months to a year to get a good average. That would be your total gross pay.
• Take this total gross pay and divide it by the number of paychecks you received/totaled up. That will give you your average gross pay.
• Take that number multipled (x) by 0.3.
• Move the decimal to the right two places, also known as multiplying by 100. That’s 30% of your total gross pay if your income fluctuates.

Total Gross Pay for 6 Months ÷ Number of Paychecks Received = Average Gross Pay

(Average Gross Pay x 0.3) x 100 = 30% of Total Gross Pay

• If you are self-employed, you’ll want to use this same averaging method, but instead of using your gross pay, you’ll want to use your net profit or income, after you’ve accounted for business expenses, self-employment taxes, etc. and follow the same formula above by averaging your net income and finding 30% from there.
• If you receive a good chunk of your income from cash tips or tips that aren’t reported on your pay check or to the government, you’ll need to start keeping track of how much you make on those tips in some way so that you can not only account for it to know what that 30% number is, but also because your property manager is going to want to know too. They won’t count unreported income towards your income total and it may affect your eligibility to rent.

Not a math person? NerdWallet has a very simple rent calculator you can use. They also have great information about budgeting and finance. You can check out their calculator and website here: https://www.nerdwallet.com/article/finance/money/how-much-should-i-spend-on-rent

RentCafe also has a great rental calculator that takes into account your current debt to give you a better financial picture of how much you should really spend on rent if you’re already in debt: https://www.rentcafe.com/rent-affordability-calculator/

Making the rent payment is not all you need to consider. You need to take into account the other bills and utilities you’ll need to pay for:

• Renter’s Insurance (Yes, you have to have it!)
• Electricity
• Gas
• Water
• Trash
• Sewer
• Internet
• Pet Rent and/or Fees
• Security Deposit & Other Move-In/Out Fees
• Credit Card Debts and Payments
• Student Loan Payments
• Vehicle Fuel & Maintenance
• Necessities: Food, Personal Care Items, Etc.
• Extras: Salon Visits, Movies, Eating Out, Bar Tabs, Home Décor, Etc.

Plus, don’t forget that you need to save too, not only for retirement but for a rainy day. If you’re not already saving for retirement, you should be! And if you’re not saving at all, then you need to start! Even just $10 a month can add up! More on that in a future article though. For now, just start stashing $10 a month in a piggy bank or an account you don’t touch. You’ll thank us later.

Some of those items mentioned above may or may not affect the specific home you are looking at. For example, many places have gone all electric, so you won’t have a gas bill. And in some rental communities, many of these items will be included in your rent payment like trash and sewer, possibly even internet. If you’re unsure, be sure to ask the leasing specialist or property manager what utilities you’ll be responsible for and what’s included in the rent.

Keep in mind that you’ll most likely have to pay a security deposit and some additional fees to secure your desired home before moving in. Often, many rental communities and homes will require a security deposit, cleaning fee, plus the first month’s rent to claim your spot. Security deposits are typically equal to one month’s rent or half a month’s rent. Most likely your leasing specialist or property manager will go over this with you at the end of your tour. Whatever the amount is, that’s extra money that you’ll want to have saved before you consider renting. And if you don’t have that amount saved, don’t sign a lease, as you’ll be working from a financial hole to make the next month’s rent payment.

Remember, you don’t want to go into debt renting. If you can’t afford the place you’re looking at, consider getting a roommate, looking at a different place that is more in-line with your budget or even holding off and living at home with your parents while you can save up some money. If you’re in a position where you must move, then adding a roommate to split the bills with or finding a more budget-friendly option may be a smarter move.

If you are planning to get or have a roommate, check out our helpful article regarding how to split the rent among roommates here: https://www.millerfamily.properties/dividing-the-rent-among-roommates (Psst...We’ve got tons of great renter’s resources! Check them out if you haven’t already! https://www.millerfamily.properties/renters-resources)

Let’s go over that bit about “in-line with your budget” briefly. If you aren’t sure what a budget is or if you don’t have a budget, you should highly consider making one. Whether you are already living on your own and have been for a long time or just looking to get started on your “adulting” journey, one of the best things you can do is create a budget.

Having a budget will help you to live within your means, save for the unexpected and retirement, and ensure that you get all your bills paid. Because let’s face it, going into debt just to survive is no way to live. To truly live independently, you’re going to want and appreciate financial freedom. And that comes with creating a budget.

There is a TON of budgeting tools out there. Many of the websites already mentioned in this article offer some type of information on budgeting if not their own budgeting account or app that you can download from your App Store or Google Play. Here are some of our favorites:

• Nerdwallet: Budgeting 101
• Nerdwallet Account
• Mint Budget Tracker App
• Budgeting Tips from Trulia Specifically for Renters
• Creating the Right Rent Budget for You from Real Simple
• Chase’s Downloadable Budget Builder if You Prefer Pen & Paper
• Ramsey Solutions offers a unique approach that’s helped millions live a life of financial freedom. Check out their EveryDollar Account and App here.

Basically, a budget allows you to tell your money where to go so that your money doesn’t tell you where to go. In its simplest form, creating a budget is very easy.

1. Total up your monthly take home pay – this would be your NET income, not your gross income. Not all your gross pay comes “home” with you for you to use in daily life, only your net pay does.
2. Then total up all your expenses in a month - these are things like your utility bills, food, necessities, etc. You could also include your extras and fun stuff in this number too. Depending upon the budgeting method you’re using, some methods will put these expenses in another category. Things like salon visits and eating out. For this simple method, you can take pretty much everything from the list at the beginning of this article plus your rent and that total number shows you what your total expenses are in a month.
3. Subtract your total expenses from your total income. That’s how much you have left every month. You can do what you choose with whatever is left but we highly recommend saving it, investing it, doing something with it to help with your retirement or for a rainy day.

Total Net Income – Total Expenses = Money Left

What if there isn’t anything left or worse, you got a negative number? Then you need to re-evaluate your budget. Figure out where you are spending money that you could stop or what changes you can make to save money. Many people don’t realize how much they spend on some of the littlest things until they see it on paper. Those daily $5 coffee shop runs add up quickly! Even something as simple as shutting off a streaming service you rarely use adds up and saves you money when you take it out of your budget. Very few things in most of our budgets are a “necessity,” so if your budget is tight, or negative, it’s definitely time to consider what you can cut out.

Plus, now that you’ve got your budget made, you can know what to expect for the coming month and plan accordingly. If you know $50 is the most you can spend on eating out in the month to make your budget work, then stick to it. Perhaps it’s as easy as having friends come over to hang out rather than meeting up at a restaurant or bar. Instead of going to get coffee every morning on the way to work, you make your coffee at home. Cancel that gym membership you only use once or twice a week and work out at home or go for a walk outside. When you get into it, budgeting can be kind of like a fun game that you challenge yourself to stick to every month. You might be surprised where and how you can easily save money and live within a budget!

And if you haven’t made the full leap to adulting, creating a budget beforehand is crucial to ensure you’re not getting in over your head with expenses from the start. If you’re not sure how much utilities will cost, you can always ask your parents or even the leasing specialist what the average cost is and they should be able to give you some numbers that you can use to create your budget from. The utility companies will also be able to give you this information if you visit their website or contact them.

Now that you are armed with your budget and you know exactly how much you can spend on rent, you’re ready to determine if are ready to move! If the numbers are right, then go for it. If they aren’t, see what you can change to make the numbers work. Taking these small, easy steps before you ever sign a lease will help you out so much in the long run.

If one of our townhomes fits within your rental budget, we hope you’ll reach out! Some utilities are included, plus we’ve got great floor plans and even offer some fenced-in yards! Roomies love our townhomes too because the floor plans allow for easy to share and split spaces that work well for all parties involved! Contact us to learn more or checkout our available units here!

Want more information? Check out the resources we referenced:

There Are Only Four Major U.S. Metro Areas Where It’s Cheaper to Buy A Home Than Rent | Redfin | https://www.redfin.com/news/rent-vs-own-2023/

How much of your income should go to rent? | Chase | https://www.chase.com/personal/banking/education/budgeting-saving/how-much-income-should-go-to-rent#:~:text=A%20popular%20standard%20for%20budgeting,were%20%22cost%2Dburdened.%22

Rental Burdens: Rethinking Affordability Measures | https://www.huduser.gov/portal/pdredge/pdr_edge_featd_article_092214.html

Gross vs. Net Income: How Do They Differ? | SmartAsset | https://smartasset.com/taxes/gross-vs-net-income

How Much Should I Spend On Rent? | Nerdwallet | https://www.nerdwallet.com/article/finance/money/how-much-should-i-spend-on-rent

Rent Affordability Calculator | RentCafe | https://www.rentcafe.com/rent-affordability-calculator/

Miller Family Properties Renter’s Resources | https://www.millerfamily.properties/renters-resources