How Much Rent Can I Afford? – Calculating Monthly Rent Payments

woman planning kitchen tableIf you’re looking for an apartment for rent, you need to first figure out how much rent you can afford per month. Of course, you’ll be limited by your income, and property managers and landlords will account for that when you submit an application. But what they won’t account for are your other living expenses – you must do that yourself. Just because you get approved to rent a place doesn’t necessarily mean you can afford it. After all, vaulted ceilings or extra rooms won’t make up for a personal budget deficit if you simply can’t afford them.

However, if you consider your situation and budget step-by-step, you can find a place that you love – and can afford.

Determining What You Can Afford to Pay for Rent

1. Factor in Your Personal Circumstances

First of all, what is your living situation going to be like? If you’re planning on living with a roommate and dividing the bills, you can afford a more expensive apartment. If you have kids or family members living with you, you’ll need more than one bedroom. If you have a pet, you may end up paying a small monthly fee.

Get your living situation squared away before you start looking for an apartment. It’ll make things easier down the road.

2. Know Your Limits

Most landlords and property managers require that your monthly take-home income is at least three times the monthly rent, and if you have a roommate, half your income must be three times your portion of the rent. While this isn’t always the case, you’ll likely need to be able to prove you have this income before you can rent any apartment.

While you shouldn’t necessarily spend this much on rent, you will at least know your rental limits by doing some quick calculations. For example:

  • If you earn $4,000 a month, you qualify for a $1,333 rent payment
  • If you earn $3,000 a month, you qualify for a $1,000 rent payment
  • If you earn $2,000 a month, you qualify for a $666 rent payment

3. Estimate Utilities

In addition to paying the rent, you also need to pay for water, gas, and electricity to keep your home running. How much your utilities cost varies widely depending on a number of factors. For example, window air conditioning units are often cheaper to run than central air. Smaller apartments with low ceilings take less to heat and cool than larger apartments or those with high ceilings. The cost also varies by utility provider, as some companies are just more expensive than others.

If you’re just switching from one apartment within the same complex or area to another, you can use your current utility bills as a guide. For example, in my last apartment, I spent approximately $50 on water and trash service, $115 a month on electricity, and $65 a month on gas. In my current apartment, located nearby, I spend about $50 on water and trash service, $90 on electricity, and $70 on gas. My budget stayed nearly the same.

If you’re moving to a new area, ask the locals what they pay. You’ll get the best sense of the true cost of living by speaking with someone who can provide a local’s point of view.

consider your financial limitations when choosing a home to rent

4. Calculate Your Other Expenses

Odds are, you’ve got other monthly bills to pay outside of your living expenses, such as your cell phone bill, car payment, and auto insurance. You’ll also have to pay for basic needs like groceries, toiletries, and clothing.

For example, my expenses look like this:

  • Car payment – $250
  • Auto insurance – $98
  • Cell phone bill – $86
  • Groceries – $300
  • Gasoline – $100
  • Incidentals (like toiletries and clothes) – $50

You’ll have to factor in these costs in your personal budget to determine how much you’ll have left to pay in rent each month.

5. Consider the Extras

We all want to be able to afford a few little luxuries, and it can be helpful to factor in at least a few such items you consider essential. Add the cost of extra, nonessential expenditures to your budget, such as entertainment, cable TV, gym memberships, and anything else you don’t want to give up just to rent an apartment. Also, if you automatically allocate a specific amount of money each money to be put into your savings account (I save $250 each month), deduct that amount from your overall spending budget.

6. Bring Everything Together

Once I know my living situation, how much I earn each month, and all of my other monthly expenses, I know what I have remaining to spend on rent. For example, let’s say I take home $3,000 every month.

Living expenses breakdown:

  • Water and trash services – $50
  • Electricity – $90
  • Gas – $70

Total cost: $210

Other expenses breakdown:

  • Car payment – $250
  • Auto insurance – $98
  • Cell phone bill – $86
  • Groceries – $300
  • Gasoline – $100
  • Incidentals – $50

Total cost: $884

Incidental expenses breakdown:

  • Internet connection – $45
  • Savings account – $250

Total cost: $295

According to my rough budget, I spend $1,389 each month to live. Out of my $3,000 take-home pay, that leaves me $1,611 a month to spend on rent. However, this amount is more than what I would qualify for at most apartment complexes since it is above the “1/3” rule. Moreover, I know that I should not spend every cent I have left over on rent, as I need to allocate money for other areas like investing, healthcare costs, and retirement.

Final Word

You absolutely should know how much rent you can afford before you start looking for a home. If you don’t know your limits, you can easily end up overshooting that limit, which will make every month a struggle. If you find yourself struggling, look for other ways to trim your monthly expenses, such as saving money on groceries or cutting your cable television.

How do you decide what to pay in rent? What other ways can you suggest to save money on monthly expenses?

  • Ron Howard

    I wish my grocery bills were that cheap!

  • [email protected]

    Good advice. Often we don’t think about all the other expenses we have when we consider what we can afford.

  • Pittsburgh Mortgage

    I’ve found that it’s always best to consider LOTS of extra little luxuries. The societal tendency is to feel bad about spending “too much” on expendables, but they really enhance quality of life. I don’t think there’s anything wrong with renting for quite a while, saving a little more slowly, and spending on the things that you really enjoy.

  • Robin

    Great article. The best one I’veead on this subject. Robin

  • Yohance Omari Trice

    Thank you Angela for you insightful, educational and useful blog

  • confused consumer

    This is confusing – are the estimates of earning $3000/month pre-tax? Post-tax? Those are 2 very different numbers!

    • KevinK

      He states that he “takes home” which is post-tax income.

      • guest commenter

        She states that she takes home…

  • Matt

    One thought to consider. I work for a utility company. And in my experience, comparing your gas bill to your neighbors’ or even to other units in a building is not an accurate comparison. As was said, SO many factors can affect your bill. My suggestion is to find out which utility services that particular dwelling, call them, and ask what the average monthy bill is. At least in Pennsylvania, the utility will have no problem giving you that information. While you’re on the line you may also want to ask for the location of the meter (inside meters can be a hastle if not read consistently) and the service status (soyou know in advance whether you’ll have to arrange for access to the unit to turn on yoir service).