A common question for people in the market for renting a new apartment is “How Much Can I Afford?”.
This is an important question to ask, as it can have very long-term consequences not only for your rental history but for your financial security and stability as well.
The last thing you want to do is rent more apartment than you can afford and get into trouble with your finances.
Additionally, renting the max of what you can afford in apartment rent also puts unnecessary stress on you at home and at work. The slightest change in work circumstance and you could be in a world of hurt.
If you are looking to move to a new apartment, something is obviously unsatisfactory in your current situation. Whether you are trying to move out of your parent’s basement, or you are moving to another town for work, a new apartment is a top priority for you right now.
You absolutely NEED to make sure that you can comfortably afford the amount of rent you are going to sign up for each month. If you are late in rent payments, that can affect your credit score for up to 7 years, lower your credit score, and make it difficult to rent the next place you want to go to.
Your landlord is also going to have the ability to check your credit score and background check when you apply to their complex. The last thing you want as an ongoing situation is a ton of late payment notices either to a former apartment complex or other bills you couldn’t afford because you rented too expensive of an apartment.
We are going to walk you through just how much your apartment should cost, depending on how much you make, and how much other expenses you should factor in when finally pulling the trigger on that new apartment.
How To Calculate How Much You Can Afford
There are two basic rules of thumb to use when calculating the maximum you can afford. These calculations are actually the same, it just depends on which way seems easy for you to calculate.
But REMEMBER……..these calculations are for the MAXIMUM rent that is affordable at a certain income. If you want to have any sort of wiggle room in your budget for things outside your rent and associated costs, you should shoot to find an apartment that is somewhat LESS than the end number that is calculated. After all, there are more costs to living than just the monthly rent.
The First Rule Of Thumb is that you should spend NO MORE than 30% of your yearly income before taxes on your apartment. So, let’s look at a real-world example here.
Let’s say you make $50,000 per year. That means……
$50,000 X .30 = $15,000.
$15,000 is the total amount of money you should be spending on rent for the year.
$15,000 / 12 months = $1,250.
This means that your monthly rent should be no more than $1,250.
The Second Rule Of Thumb is virtually the same but in reverse. Let’s do an example….
You are looking at an apartment that costs $975 a month in rent. So how much do you need to make, at minimum, to be able to afford that apartment?
$975 X 40 = $39,000
Your yearly income needs to be at least $39,000 to be able to afford the apartment.
These are easy rules of thumb that you can use when you are on the hunt for a new apartment. But remember, these aren’t the only costs you are going to incur just in your apartment living.
A common estimate is that you are going to need 20% of your monthly rent for your Utilities, Gas, etc. On top of this, you are going to need approximately 3 times your monthly rent just to be able to move in. You are going to need your first month’s rent, a month’s rent for a security deposit, and then another month’s rent for other move-in costs.
Be sure that you factor all of these other expenses into your budget when considering an apartment. Because you are going to have a car payment, insurance, wireless phone, travel, food, clothing, not to mention entertainment and fun, which is going to come out of your total income as well. If you get too financially tied to your rent payment just to get a bit bigger or nicer of an apartment, you can really put a stress on the other things in your life.
How Much Rent Can I Afford If I Have A Minimum Wage Job?
If you are living on minimum wage, we are going to use the same rules of thumb for your income and what you can afford, the very same rules apply.
While the Federal Minimum Wage is $7.25, many states and cities have a higher minimum wage rate. Let’s take a look at a couple of different areas and states to see how much apartment you can afford on the minimum wage.
Remember that over 50% of people on the minimum wage are between the ages of 16-24, and the vast majority of them are working in restaurants and hospitality. Many times, these younger people are going to have a roommate which they can split the costs of the rent and utilities with, allowing them to stay in a more expensive apartment than they otherwise would have been able to afford.
However, for the purpose of our example, we are going to assume that the person on minimum wage is a single earner looking to get an apartment for themselves.
In Washington State, the minimum wage there is $11.50/hr. This means that you would be able to rent an apartment of almost exactly $600/month.
In Vermont and Arizona, the minimum wage there is $10.50/hr. You could get an apartment that cost $546/month to make sure you stay in your budget.
Nebraska, Michigan, Minnesota, and Alaska all have minimum wage amounts that range from $9.00-$9.84. This means that you could afford rent between around $430/month to about $475/month.
Knowing how much rent you can afford is crucial to making sure you keep within your budget and not overextend yourself. The two Rules of Thumb, the 40x monthly rent and 30% of your yearly income are two easy ways to determine whether or not you can afford that new apartment.
