How Much Rent Can I Afford?

Laveta Brigham

Advice from financial planners can be helpful, but these guidelines don’t always apply to everyone. Take rent for example. The traditional advice is simple: Spend no more than 30% of your before-tax income on housing costs. That means if you bring in $5,000 per month before taxes, your rent shouldn’t […]

Advice from financial planners can be helpful, but these guidelines don’t always apply to everyone. Take rent for example. The traditional advice is simple: Spend no more than 30% of your before-tax income on housing costs. That means if you bring in $5,000 per month before taxes, your rent shouldn’t exceed $1,500.

Yet in high-cost-of-living cities around the U.S., lots of Americans are spending much more than 30% of their take-home pay on rent. CNBC Select spoke to Michaela McDonald, a certified financial planner and Albert financial advice expert, to help you figure out how much rent you can really afford.

Here’s what she has to say:

Rent higher than 30% of your income might be OK

If you live in a high-cost-of-living area, your rent might be more than 30% of your gross monthly income.

“And that’s OK,” says McDonald. “You just have to adjust other areas of your budget.”

Whether you currently live in an expensive city or foresee a move in your future, McDonald suggests taking a look at all the ways your budget might be different than someone living in a more affordable area. You might find that certain costs are lower than others, so you can afford to pay more in rent.

For instance, in a city with good public transportation, you could save money by ditching your car and taking the subway or bus instead. Or maybe having access to free or discounted cultural events makes up for having to trim your entertainment budget.

Likewise, the cost of living in a more expensive place might be well worthwhile if it opens up fulfilling career opportunities and higher earning potential to boot. If you’re moving for a job opportunity, do some salary comparisons to make sure you’ll be earning enough to compensate for higher living costs.

And before you relocate to an expensive area, do your research on the housing market, too: “Take a look at what current rental prices are and identify a few neighborhoods you’d like to live in,” McDonald advises. “Rent an Airbnb for a bit and walk around the areas, get to know what’s currently offered and what’s normal.”

It’s also important to figure out just how much more rent you can afford if you’re moving into a more expensive apartment. Instead of just taking the plunge and hoping for the best, take a few months to see how higher rent would impact your overall budget.

If your rent is increasing by $500, for example, start saving that amount every month so you can see what it’s like to live without it. Put the money in a high yield savings account such as the Vio Bank High Yield Online Savings Account, and then you can use that extra cash to pay for moving costs or as an emergency fund if you don’t yet have one.

Vio Bank High Yield Online Savings Account

Vio Bank High Yield Online Savings Account

Information about the Vio Bank High Yield Online Savings Account has been collected independently by CNBC and has not been reviewed or provided by the bank prior to publication. Vio Bank is a division of MidFirst Bank, Member FDIC.

  • Annual Percentage Yield (APY)

  • Minimum balance

  • Monthly fee

    None, if you opt for paperless statements (otherwise, $5 per month)

  • Maximum transactions

    Up to 6 free withdrawals or transfers per statement cycle *The 6/statement cycle withdrawal limit is waived during the coronavirus outbreak under Regulation D

  • Excessive transactions fee

  • Overdraft fees

  • Offer checking account?

  • Offer ATM card?

A good credit score makes renting more affordable

Experian Free Credit Monitoring

Experian Free Credit Monitoring

Information about Experian free credit monitoring has been collected independently by CNBC and has not been reviewed or provided by the company prior to publication.

  • Cost

  • Credit bureaus monitored

  • Credit scoring model used

  • Dark web scan

  • Identity insurance

Bottom line

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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