How Much Should You Really Spend on Rent?
Let's cut to the chase: city living is expensive.
Really expensive. But, it also comes with lots of big perks (dinner at Nobu, anyone?).
The Old School Rule
The traditional wisdom suggests that a safe bet is to allocate 25-35% of your take-home pay to rent. While this is a good rule of thumb, it doesn't always account for the realities of modern living, especially in high-cost areas.
A broom closet in San Francisco can cost more than a 4-bedroom house in Pittsville (yeah, that’s an actual place). There is simply no one-size-fits-all solution to the question of how much you should spend on rent.
A More Flexible Approach
At Stash Wealth, we believe in a more personalized approach. Instead of blindly following a one-size-fits-all formula, we encourage you to consider your unique lifestyle and priorities.
Your Lifestyle: If you're a homebody who enjoys cooking, hosting, and relaxing at home, you may be willing to spend more on a larger, more comfortable space. On the other hand, if you're always on the go, a smaller, more affordable apartment might be sufficient.
Your Location: Housing costs vary widely depending on your location. In high-cost cities, you may need to spend more than 30% of your income on rent to live in a decent neighborhood.
Your Financial Goals: If you're saving for a down payment on a home or other major financial goals, you may need to allocate less to rent.
A Real-World Example
Let’s say you earn $125,000 per year. After taxes, your take-home pay will likely be around $8,000 per month. According to the traditional rule, you should spend between $2,000 and $2,800 on rent.
However, in a high-cost city like New York or San Francisco, you might need to spend more to find a decent place to live. Let's say you find a great apartment for $3,500 per month. This would put you at 44% of your take-home pay, which is higher than the traditional recommendation.
While this may seem like a lot, it's important to consider your lifestyle and priorities. If you're happy with your living situation and can still afford to save for the future, then it may be a worthwhile tradeoff.
The Bottom Line
While the 30% rule is a good starting point, it's not always practical, especially in high-cost cities. Sometimes, paying more for a better location or a more comfortable living space can actually improve your quality of life and productivity. It's about finding the right balance between your lifestyle. Remember, a well-chosen rental can be an investment in your happiness and well-being.
Key Takeaways
The 30% rule is a good starting point, but it's not always practical.
Consider your lifestyle and priorities: Are you a homebody or a social butterfly?
Location matters: Housing costs vary widely depending on your location.
Prioritize your well-being: A good living space can improve your quality of life and productivity.
Balance your finances: Find a balance between your housing costs and your financial goals.
The F. Word
Ready for some real talk on how to master your money? Pull up a chair and pour yourself a glass.
Financial Planning For 30-Somethings
Whether you’re saving for Tahiti or a Tesla, we help you reach your goals and make the most of your money.
