How much should you spend on rent? Read Domu’s guide on rent-to-income ratio
Do you know how much you can afford to spend on rent, or how much you ought to spend? Many Chicago apartment searches begin with a realization that you’d like to move to a particular neighborhood, or that you would really like to have a specific feature—like a great view or outdoor space—in your next apartment. But what about rent?
Recent studies indicate that one in three Chicago apartment renters (and one in four renters nationally) spends more than half of their income on rent and utilities. Chicago apartment hunting is all about finding a good deal, so everyone's asking: "How much should I spend on rent?"
The general rule is that your monthly rental payments (excluding utilities) should not exceed 30% of your monthly income. So, to help you budget effectively, we created a handy rent calculator.
See How Much You Should Spend on Rent with Domu’s Rent Calculator
For more advice on calculating monthly rent and balancing it with your lifestyle, financial goals and other factors, Domu asked renowned financial journalist Ilyce Glink for her tips to consider during the apartment search.
According to Ilyce:
Set A Budget
When setting a rental budget, the three most important considerations are your income, your recurring expenses, and your long-term plans. Make a list of your fixed expenses, such as your cell phone and internet package, typical grocery expenditures, costs associated with your commute, gym membership, a weekly massage, student loans, etc. Consider your monthly income and your savings goals, and you’ll get a sense of what you have available to spend on rent.
Follow the Numbers
The basic income-to-rent ratio. Ideally, your rent should be no more than 25% to 33% of your gross (pre-tax) income. “You can’t run your life on a ledger,” Glink says, but it is ideal to limit your housing costs to a third of your pre-tax income. Use Domu’s rent calculator to do the math. If a third of your pre-tax income seems inadequate, you aren’t alone: Glink shared that 40% of millennials receive rent assistance from parents. And those who are not receiving parental aid are reportedly spending 40-60% of their income on rent.
Make a “wish list” and a “reality check list.” Everyone wants everything in their new home, but we all have to make tradeoffs. Glink suggests that you make a wish list of the 15 features you’d like in your next apartment (proximity to work, natural light, a washer/dryer in unit, a great view, outdoor space, a dog run, hardwood floors parking, etc.). Then consider which of those amenities are most meaningful to you. If you spend 10 hours a day at the office, maybe you value proximity to the office over natural light. Maybe you don’t need an in-unit washer/dryer if there are laundry facilities in the basement. And maybe the pool table shouldn’t be on the list at all.
Balance Things Out
Rent should not interfere with your lifestyle. Before you stretch for a larger rent, be thoughtful about how the extra expenditure will impact your lifestyle. Consider a roommate or a co-living opportunity to economize.
Save for retirement and pay down student loans. Everyone should save for retirement. And if you have student loans, you should try to pay them down. As a result, it is difficult to save for a down payment on a home, and millennials are reaching that milestone nearly a decade later in their lives as compared to previous generations.
Now that you’ve calculated your income-to-rent ratio and drawn up your reality check list, it’s time to start your apartment search.