What Percentage of My Income Should Go Toward Rent?

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Are you paying too much for rent?

Rent can be one of the largest monthly expenses. Keeping your monthly rent as low as possible can help you save money and avoid living paycheck to paycheck.

Here is some advice to help you plan how much to spend on rent.

How much of my income should go toward rent?

The answer depends on several factors:

  • Where you live
  • How much you earn
  • Your financial goals

You can follow these steps to figure out how much money you should spend on rent each month. 

Determine Your Monthly Income

The first and most important step in figuring how much you spend on rent each month is to determine your monthly net income.

Almost everyone knows their annual income but you can’t budget off of that figure as it is your gross income. You need to figure out your net income as it will be less because of taxes and any other payroll deductions, such as a 401k.

Once you know your take-home pay each month then you can figure out how much to spend on your rent each month.

For example’s sake, let’s say you make $60,000 per year gross income and contribute 5% annually to match your employer-sponsored 401k.

Example: $60,000 Annual Salary

  • – $3,000 for 401k contributions
  • $57,000 in taxable income
  • 22% Tax rate
  • $44,446 net income
  • $3,703 monthly or $1,851 bi-weekly after-tax income

$3,073 will be your working number to determine how much you should spend on rent each month. Do this quick calculation and keep reading to figure out what percentage of your income should go to rent.

The 30 Percent Rule

If you don’t know, one of the oldest ways to determine how much you should pay for rent is known as the 30 percent rule. Today, the 30 percent rule is more of a general guideline and does not work for everyone as some locations are much more expensive than others.

For example, the costs of living in Phoenix, Arizona are much cheaper than living in New York City.

With the previous $60,000 example spending 30% of your taxable income on rent would give you $1,100 per month for rent. This would be nearly impossible to do in New York City as the average 2 bedroom apartment was $4,042 (source NY POST) but very doable in Phoenix, Arizona.

Plus, the 30 percent rule doesn’t include other housing costs like utilities. 

Don’t Forget Utilities

While your rent will almost always be your biggest expense each month, it’s important to budget your other expenses as well.

It’s easy to overlook utilities as they can be separate from the monthly rent payment. But they are an important part of budgeting out how much to spend on rent.

Depending on your landlord and location, some utilities might be covered by your rent payment.

These might include:

  • Trash
  • Water
  • Sewer
  • Cable
  • Internet

Be sure to know what is covered with your monthly rent payment and then add on the following utilities.

Utility bills can vary depending on your monthly usage. It can be best to budget an average bill for a 12-month period to predict your rent and utility costs.

Apps like You Need A Budget can help you easily track your spending and make a monthly spending plan.


Your highest utility bill will most likely be your electric bills. Your appliance, cooling system and lights all rely on electricity for example.

The average electric bill can vary by location. Locations like Chicago will have very different heating costs than San Diego.

Also, the construction quality and home size are influential. Check with your local provider to learn more about estimated monthly costs or a plan that allows you to pay the same each month.

There are ways you and the landlord can reduce your electric bill cost.


Some people might favor a nicer place and drop the $100 plus cable bill while others aren’t ready to cut the cord.

Check out the best alternatives to cable TV to start saving thousands each year.  


Some apartment complexes include internet but it typically is a low service plan. If you choose to keep cable and internet with the same company choose to bundle to save more money. 

It’s also possible to get internet without cable to keep your entertainment expenses low.


Will your new apartment or house have gas, or will everything be included in the electric bill? Gas heat can be cheaper than electric heat in cold climates. You save money but it’s another bill to pay.

Renters Insurance

While technically not a utility, you need to always include renters insurance in your budget.

Many landlords require renters insurance, which will be a few hundred extra dollars per year. If you choose to pay yearly in advance, you will normally get a discount.

Don’t skimp on protecting your stuff and get several quotes to get the best protection at the lowest cost.

Here’s how to see if you’re below the 30% rule:

  1. Calculate rent and monthly utilities
  2. Add renter’s insurance monthly premium
  3. Compare monthly costs to net monthly income

Personally, when I was renting, I never tried to go above 35% as I was aggressively saving for my first home. Instead of using the outdated 30% tool here is a better idea. 

The Solution: 50/30/20 Budget

While the 30% rule has worked in the past it’s not as realistic with rising rent costs and unmatched income.

The solution is the 50/30/20 budget.

Here’s how the percentages break down:

  • 50% for essential expenses
    • Housing
    • Utilities
    • Transportation
    • Groceries
    • Other items that don’t vary on a monthly basis
  • 30% for optional expenses
    • Entertainment
    • Dining, takeout, and food delivery
    • Gym membership
    • Online shopping
    • Self-care
  • 20% for financial goals
    • Extra debt payments
    • Long-term savings
    • Retirement plan contributions (above the 401k match)
    • Saving for a house down payment
    • Upcoming vacation

I personally love the 50/30/20 budget as it allows you have some flexibility with your spending.

Many people fail at budgeting because it is so strict that it doesn’t allow people to spend any money. Humans are only so disciplined.

Eventually, after saving every penny to pay off debt or reach a financial goal, you might lose willpower.

It’s no different than someone who is losing weight and never gets a cheat meal.

Budgeting is all about finding the right balance and figuring out what works with your financial goals. 

How the 50/30/20 Rule Breaks Down

From the previous example, here is how a $60,000 per year with 5% 401k deduction would break down: 

$60,000 Gross Salary

  • $3,000 401K contribution
  • $57,000 take-home pay ($3,703 per month)
  • 50% = $1,851
    • Rent: $1,200
    • Utilities: $150
    • Car Payment: $174
    • Car Insurance/Gas: $140
    • Groceries: $185
  • 30% = $1,110
    • Online Shopping (books, movies, small furniture, personal care, clothes): $380
    • Target (house supplies, pet care, etc.): $200
    • Restaurants/Entertainment: $280
    • Gym membership: $65
    • Haircut: $50
    • Netflix: $12
    • Leftover: $123
  • 20% = $740
  • School loan payment: $300
  • Emergency fund contribution: $200
  • Roth IRA: $240

Use the 50/30/20 as a guideline for your own finances but don’t be afraid to edit for your personal situation.

Spending 30% on entertainment and optional wants might be high for you. If you want to spend less on the 30% for entertainment, contribute more for retirement or splurge for a bigger apartment.

Alternatively, you can also flip-flop the 30% and 20% categories to increase the amount going to your financial goals. If you’re still stretched for rent each month here are some easy ways to lower your rent payment. 

How to Lower Your Rent Payment

Check out these three ways to lower your rent payment keep your essential expenses below 50% of your take-home pay.

Get Roommates

Depending on where you are in your life getting roommates might not be an option. If you are married, have kids or a large family it might not be possible.

But, if roommates are a possibility, they are one of the best ways to lower your rent payment.

Finding a few roommates can almost always get a bigger apartment or house and decrease the average cost per person.

People in New York go all out for this idea and can have 7 or 8 people living in a two-bedroom apartment.

Before adding a roommates, make sure your landlord allows subletting.

While living alone gives you freedom and privacy, it also comes with a hefty price tag.

If you want to live alone in the future, remember that you are responsible for everything.

Living solo means you pay full cost for these expenses:

  • Rent
  • Utilities
  • Food
  • Household luxuries

My biggest piece of advice is to live like a college student as long as you can. The less overhead you have, the more can go toward paying off debt and setting up your financial future. 

Improve Your Credit Score 

Yes, improving your credit score can lower your monthly rent payment.

Checking your credit score for free can help you make improvements and correct any errors.

A lot of landlords will have different rent payments depending on your credit score. If your score is too low they might not even accept your application.

I always like to think of my credit score as a real-world GPA but much more important. The higher your score the lower your rate and usually quicker approval.

Plus, if you decide to become a homeowner your credit score is a huge factor when it comes to securing your lowest interest rate.

Think About Moving

Location, location, location is one of the oldest rules about where you choose to live.

Rising housing costs in cities like San Francisco and Austin is making it very hard to live comfortably even with a high salary. While uprooting might not be for everyone, moving can have a huge impact on your finances and quality of life. 

After college, I chose to move from pricey San Diego to Arizona so I could finally afford to live alone and start the next chapter of my life.

When I was looking at places in San Diego, apartments were around $1,500 – $2,000 per month. This was well above my budget for a post-college grad.

By moving one state over to Arizona, I was able to secure a much nicer apartment for only $700 with tons of amenities. It was literally half the price of the lowest cost ones in San Diego.

Other than moving costs, relocating can be a great way to save money and start something new.

Relocating may also help you live rent free depending on the circumstances.

Ask yourself, “Do you love where you live or are you ready for a change?” Maybe you have the option to work remotely at your job or want a fresh start in a new area.

So, How Much Should I Spend on Rent?

This will be different for everyone and largely dependent on your income, location, and financial goals.

Try the 30% Rule First

If you have a high income or live in an affordable area. Try keeping your rent and utility costs below 30% of your take-home pay.

Following this guideline means you have more money to pay off debt and save for future expenses.

Renting instead of owning a home gives you the flexibility to move at short notice and not be responsible for property maintenance. But, you’re also not building net worth through home equity once you pay off the mortgage.

Of course, you should choose an unsafe place to live to simply keep rent below 30% of your income.

Consider the 50/30/20 Rule for High Rents

The 50/30/20 budget can be the better option if you live in an expensive city or have a limited income.

This budget allows you some wiggle room if you have a month of higher expenses or save more if you have a cheaper month.

You will want to make sure your food and housing expenses don’t exceed 50% of your paycheck.

The 50/30/20 is a great option but don’t forget to refer to the other ways to lower your rent payment, including roommates and relocation.

If you are trying to save money to pay down student loan debt or buy your first home, then you might want to use one of these tips to lower your rent payment.

When you are paying off debt or saving for a goal, oftentimes, you might have to sacrifice in the short term for the long-term gains. Hopefully, this helps you figure out how much to spend on rent each month. 


Rent costs vary by city and your current income. Now you should have an idea of what percentage of your income should go toward rent.

It’s best to keep rent and living expenses below 50% of your take home pay to comfortably afford your other monthly goals.

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  1. Like you said, it completely depends on where you live. Rent in a small towns is really cheap, whereas rent in a big city can be extremely expensive.

    1. You’re exactly right!