Financial Learning | May 17, 2024 | 3 minutes read
- The general rule is to spend no more than 30% of your income on housing.
- In 2024, finding housing that is less than 30% of your income can be tricky.
- When you’re struggling to find a place you can afford, you can try negotiating your rent, expanding your search area, or getting roommates to lower your housing expenses. You can also meet with a KOFE financial counselor for free.
If you’re looking for a new place to live, you might wonder how much is “reasonable” to spend. While the world of personal finance provides a percentage guideline for how much of your money should go toward housing, this rule is a little outdated in 2024.
Rent prices are down from their peak in August of 2022, but they’re still dramatically higher than before the pandemic. Fortunately, you can utilize some budgeting and savings strategies to lower your housing expenses.
About 30% of Your Income Should Go Toward Housing
The traditional rule is that a maximum of 30% of your income should go toward housing. That said, this conventional advice is out of sync with the reality of the housing market today.
According to the most recent data, the average American household brings in a median income of $74,580, which equates to about $6,215 per month. Thirty percent of that number would put your maximum rent at $1,864.
However, the median rent in the U.S. is currently $1,967. This is above the suggested $1,864 budget. The mathematical conundrum gets messier if you’re a single person or a single-income household where you’re likely not bringing in as much as the median household.
Budgeting With Numbers That Don’t Work
When it comes to budgeting, there are many different methods available.
Traditional Budgeting
With a traditional budget, you subtract your monthly expenses from your income. If you have any money left over at the end of the month, you either leave it there or transfer it towards one of your savings goals.
Unfortunately, if housing is a problem, there might not be any money left for other financial goals or needs.
Zero-Sum Budgeting
With zero-sum budgeting, you leave nothing to chance. You account for every dollar and where it will go, including your savings or investing goals, until you get the end monthly number down to zero.
If your housing expenses are too large, you may struggle to get your number to zero and end up in the negative instead.
50/30/20 Budgeting
The 50/30/20 budget directs you to put 50% of your income toward needs, 30% toward wants, and 20% toward savings. Housing falls under your 50% needs budget, along with utilities, transportation, and food.
Let’s say you fall perfectly in line with the median household. You bring in $6,215 per month. Fifty percent of that would be about $3,108. After subtracting your median rent of $1,967, you only have $1,140 left.
Once you pay for your internet service, cell phone bill, heat, electricity, car loan, and groceries, you’re cutting it close in the need category. This is particularly true if you provide for people other than yourself.
Fixing the Math
You might be willing to accept that your rent will be more than 30% of your monthly budget, but that doesn’t mean your landlord will.
Many landlords require you to prove that you make at least 3x the monthly rent to move in. There are a few workarounds you can implement to try to get that number closer to the ideal 30%, including:
- Getting a roommate: Sharing your space is an excellent way to split (and lower) the bill.
- Negotiating your rent: This tends to work best when you are moving into a new place instead of renewing a lease.
- Looking at different neighborhoods: Casting a wider net gives you more opportunities to find hidden gems when it comes to affordable rent.
If things still aren’t adding up, you can also meet with a KOFE financial coach for free. They can help evaluate your budget and see if there aren’t things you can do to better afford your monthly housing payments.
The Final Word
Having to spend more than 30% of your budget to secure safe and healthy housing does not mean you’re bad at money. It just means there’s a housing shortage, and we’re all paying the collective price.
Nevertheless, there are strategies you can explore to lower your monthly housing budget, like getting a roommate, negotiating with your landlord, or expanding your search area.
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