The rule entails spending 50% of your monthly income on essential expenses such as rent, monthly bills, and groceries, spending 30% on non-essential purchases such as going out to eat, and putting 20% into your savings account. The 50/30/20 rule is a popular method to follow when determining your expenses in your monthly budget. When determining how much you can reasonably pay in rent per month, there are some other things to consider before you say no. The 30% rule does not always perfectly align with your budget. Make sure that your monthly rent payments don’t prevent you from paying off credit card debt or loans: your rent shouldn’t cause you to fall deeper in debt. If you have to spend over 30% per month on rent, you'll have less money left over for bills and important purchases, making it more difficult to build savings. Why you shouldn’t spend over 30% of your income on rent For instance, if you have credit card debt or student loans to pay off, consider finding an apartment with rent below 30% of your monthly income, so you can put more of your budget toward reducing your debt. The 30% rule is a general guideline that renters can follow, but they should also take into account other expenses and factors. This has been a rule of thumb since 1981, when the government found that people who spent over 30% of their income on housing were "cost-burdened." Under 30% What should your rent to income ratio be? The 30% ruleĪ popular standard for budgeting rent is to follow the 30% rule, where you spend a maximum of 30% of your monthly income before taxes (your gross income) on your rent. Here’s how you can figure out how much of your income should go toward your monthly rent. Finding your perfect budget balance can help you save and spend with confidence.Ĭynthia Measom contributed to the reporting for this article.Ideally, your monthly rent payments should leave you with enough money left over for bills, groceries, a bit of non-essential spending, and even savings. These values can help shape your financial decisions when deciding on your budget percentages. Remember that what you include in your monthly budget depends on your own values, needs and priorities. Tips such as the 50/30/20 rule can help you hone in on your ideal budget percentages and will lead to better money management. Good To Knowīefore breaking down your budget percentages, carefully consider your spending habits and savings needs. You may have to move money around to compensate. Adapt To ChangesĪs you track your expenses, be prepared to make necessary adjustments as your financial situation changes. This can allow you to adjust your budget for more variable expenses, such as healthcare, clothing or travel. Fixed expenses are less likely to change from month to month, such as rent, mortgage, food or utilities. Make sure to take into account both fixed and variable expenses. Start by grouping expenses into the categories mentioned above. You can use a online or printable budget template or spreadsheet, or you can invest in budgeting software to help you track your expenses each month. Maybe you know how much you earn, but do you know where every penny goes? Tracking both income and expenses gives you the whole picture. This gives you a sense of your monthly cash flow. Take inventory of all of your bank accounts - including checking, savings and credit cards - to accurately identify your spending. Medical, dental and other insurance premiums.
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