In light of the semi-recent housing bubble (and ensuing plummet), it’s easy to feel incredible about your rent payments one day and totally horrible the next. Things are certainly better than they were, but the amount we spend on our homes is still less than ideal.

The Tortoise and the Hare: A Tale of Income vs. Rent Overspending

Renters Are Overspending on Housing Income Vs Rent Overspending

In towns and cities all across the nation, housing costs are crippling many Americans. In fact, according to the U.S. Census Bureau, 40 million people are spending upwards of 30% of their income on housing alone— a number than researchers consider to be significant housing-cost burden.

Rising housing costs are relatively normal, but the recession’s foreclosures forced many homeowners into the renting world, causing rental prices to spike by nearly 25% since 2005. What’s more, wages aren’t currently growing along with them, which is a problem for a group of renters already strained under housing costs approaching 50% of their income. So what’s a renter to do?

Rent is Just One Piece of the Income Pie

Renters Are Overspending on Housing - Rent is Just One Piece of the Income Pie

If 30% is considered to be a housing cost-burden, then how much should of their current income should renters be paying? Most experts say 25% is ideal, though this doesn’t necessarily need to include utility, heating and cable costs.

When you add in those extra housing costs, you’ll want to limit the cumulative total to no more than 33% of your monthly income. Paying more is possible, of course, but only at the expense of discretionary spending and savings.

Limiting your rent to 25 or 30% of your monthly income will allow you to put money aside for emergencies and tuck some money away every month into savings. Apartment Therapy has a simple way of figuring this out with minimal math (hey – I’m a writer): Take your annual income and divide it by 40. Say you make $40,000 each year. Forty thousand divided by 40 is $1,000/month.

The only caveat? You’ll need to start with your take-home pay– so your salary minus taxes and insurance costs.

Big City Livin’: When 25% Just Doesn’t Cut It

Renters Are Overspending on Housing - Big City Living

There’s good news for all you city-dwellers out there, though: This guideline assumes that you’re spending another chunk of change on a major monthly payment like a car or a student loan. If you’re debt free (teach us your ways), then you can afford to up that proportion a bit.

All of your necessities (basically all mandatory monthly bills, including your cell phone, renter’s insurance and transportation costs) should roughly amount to 50% of your income. Hooray!

There’s one more bit of advice I wish I knew before I signed my lease at my beautiful Chicago studio: Furnishing a new apartment is pricey, but so important for making your place feel like home. It’s often a good idea to pick an apartment a little under your 25 (or 40) percent budget to allow yourself to start stocking up on stuff you’ll take with you for years to come.

Feel ready now? Let the apartment hunt begin!

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Renters Are Overspending on Housing

Image Source: Chris GoldbergRobert van RielRob Deutscherjo.schz

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