Having a sweet apartment that is the envy of all your friends in a great location in town can be an extremely rewarding experience when renting an apartment. But how much apartment is too much? When does it make sense to downsize your apartment?
One rule of thumb when considering how much to spend on an apartment is that you don’t spend more than 30% of your salary, after taxes, on your apartment.
There are a few considerations to think about when making these calculations, so let’s go through some of the most common ways to determine how much you should be spending on your apartment.
How Much Should I Be Making To Rent An Apartment?
Making sure you are able to keep paying your rent without breaking the bank is one of the most important considerations you are going to face when renting an apartment. Whether you are renting an apartment for the first time and wondering what your budget should be, or whether you have just had roommates move out of your shared place and are wondering if you can, or should, afford the larger apartment on your own.
When you boil it down, it doesn’t matter as much how much you MAKE, but rather, how much of WHAT YOU MAKE you should be spending on an apartment.
There are millions of people in the United States that are making between $25,000 – $45,000 per year. Some, make even less than that and are still able to afford an apartment to live in.
The key thing to keep into consideration is to not spend too high of a percentage of what you make. Let’s take a look at an example.
Let’s say you make $25,000 per year. The rule of thumb, which we mentioned above, states that you should not be spending any more than 30% of that $25,000 on your apartment. (Most calculations take taxes into consideration as well, but for the sake of the example, I will keep it as simple as possible.) So how much, AT MAXIMUM, should you be spending on your apartment every year?
$25,000 x .30 = $7,500.
So, $7,500 is the MAXIMUM amount you should be spending on your apartment for a year. Or if you want to know how much that is a month, simply divide it by 12, and with this example, you would get $625 per month.
You can do this calculation backward too if you like. Say you see an apartment listed for $850 per month. Can you afford this? Let’s find out. All you need to do is take the monthly cost and multiply it by 40, and you will get what income you need to afford the apartment.
$850 x 40 = $34,000
Going by the 30% rule, you would need to make AT LEAST $34,000 per year to be able to afford that apartment.
And remember, there are other costs that are associated with living in an apartment. There are Move-In Costs, Application Fees, Background Checks, Pet Fees, not to mention utilities, cable, and internet.
All of these fees can add up. What you REALLY should do is figure out about how much these expenses are going to add on to the cost of living in that apartment and see if you have the money in your budget to live there.
The last thing you want to do is rent an apartment at the very limit of what your budget can afford, and then have a bunch of costs that you weren’t expecting that you now have to cover. If you have to move out before your lease is up because you can’t afford it, that is going to affect your credit and your rental history for at least the next 7 years.
The best thing to do is to make sure that you have more than enough money to afford where you want to live.
Should I Take Out A Loan For An Apartment?
From time to time I see people coming in to rent apartments from us who are so desperate to get an apartment that they are willing to take a loan out to get it. The vast majority of these potential renters are kids that are just out of high school, or perhaps 1st or 2nd-year college students. They are REALLY wanting to get out of living with mom and dad, maybe they have a girlfriend, they just started new jobs and want to go out on their own, etc.
These new renters are willing to do just about anything to establish their independence, but is it the best move they could make?
As much as you want to start your life out on your own, maybe with your friends, or maybe with your significant other, the last thing you want to do is go into debt just to be able to pay for your apartment.
This holds true even if you have a job and you can just pay the loan back off again. By taking out debt, you are borrowing money for something that you are only renting, not buying. This is a terrible move to make right when you are starting your life off.
If you DO have a job or have a friend or two that wants to move in, then WAIT until you have the funding for all of the fees associated with renting the apartment. I realize that waiting another month or so maybe tough and probably the last thing on earth you want to do. But I also cannot stress enough how many times I have seen people right out of high school or during the first couple of years in college bite off more than they can chew with their first apartment.
Make sure you have enough money not just for the monthly rent, but for the security deposit, application fees, utilities, and all the other costs associated with renting an apartment.
If you are thinking that you NEED to take out a loan to make it work, you’re not in good enough shape financially to rent the apartment. Just wait, save up some money and do it right.
How Do I Know If I Should Downsize My Apartment?
But what if I am already in an apartment and finances are getting tight? Or maybe you are thinking that you just have too much apartment? How do you know?
First, if you have multiple bedrooms you previously had roommates occupying, chances are you still have those rooms, but you don’t have their part of the rent helping to pay for it anymore.
If you don’t absolutely need this extra space, then look at less expensive apartment at another complex, or perhaps the same complex, that you can happily occupy and save money.
If you are feeling the pinch of monthly rent, and the other expenses of owning an apartment are starting to add up and put pressure and stress on you, this is also a red flag that you should be looking to downsize your apartment and save some money.
Many landlords will be happy to move you to another apartment in their complex if you agree to simply sign a new lease. If you have been paying for your apartment regularly, they would rather keep you as a good renter for as long as possible, than lose you over a few hundred dollars.
And they can always rent out your old apartment to someone else willing to pay the higher amount, so it can be a win for everyone.
If you are feeling financial pressure from the costs that are associated with your apartment, look for a new unit someplace that will fill your housing needs without stressing you out financially or putting you in a bind.
