What Percentage of a Salary Should Go to Rent

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Typically, a person’s three biggest expenses include rent, transportation and food. For many individuals, the amount spent on rent is essential to overall money management. There are various factors when determining the amount of money that should be allocated to rent. However, many experts believe that around a third of income should go towards rent. According to CNN, renters typically spend about 33 percent of their income on housing.

Location and Rent

Consider the city in which you live. Rent can drastically differ among cities and individuals who live in high-rent cities may need to allocate a bit more of their income toward rent. According to the website Currency, individuals in large metropolitan areas may need to allocate as much as 50 percent toward their rent. Someone who lives in a rural area may only need to spend around 15 percent of her income. Cities with the highest rents include Austin, New York, Washington, D.C. and San Francisco.

How to Calculate Rent

Start with your gross monthly income. Next, deduct any expenses you absolutely have to pay. Then, subtract taxes and savings. After going through this process, you should have a better idea of how much money can be allocated to rent. If you don't have enough money for rent, go back to your expenses and determine where you can free up cash.

Buying a Home

Consider the long-term financial aspects of investing in rent. In some cases, it may be more profitable or practical to buy a house. If you know you will stay in a location for an extended period of time, consider investing in a home as opposed to renting.

Other Considerations

A rent higher than a third of your income could be justified based on other life aspects. For example, you might want to cut down on your commute or be closer to family and friends. However, for proper financial management, other aspects of life such as dining out and other miscellaneous expenses may need to be cut.