My girlfriend and I currently live at home with our parents but are planning on moving out in the July-August timeframe to rent an apartment together. Both of us have our first big-person jobs so we’re brand spanking new to this. We’re in the process of figuring out our budget, but I’ve been reading contradictory rules of thumb on the internet when it comes to how much we should allocate towards rent. I’m just curious what you all think. Quick rundown:
Household annual income: 81k/year
Combined savings: ~25,000
No student loan debt (god bless our parents)
Her credit score: ~750
My credit score: 660 (late on some bills as a dumb college kid)
I have a car lease that comes out to 400/mo, insurance included
Her car is bought and paid for, her insurance is 90/mo
Given all this, what do you think we realistically qualify for in terms of rent? If any other information is needed, I am happy to provide it.
Personally the best way to figure this out is to lay out your entire monthly spending down to the dollar and see what you have left over to spend monthly. The info you gave so far isn’t going to help draw a conclusion using this method.
So, we’ll use the traditional rule of thumb. 33% of gross or less is considered safe.
$81,000 annual gross is $6,750 monthly gross. A third of that is $2,250. Therefore, a rent of less than $2,250 is considered safe. You’ll also want to account for renter’s insurance, which is generally recommended to get.
But again, it ultimately depends on your spending profile and how much you have left after all the bills and recreational spend. Like, would you be comfortable living with whatever free money you have left over? Will you be able to meet financial (short, long, retirement) goals?
Since you’re not married you need to think of this as two roommates, not people with a combined income and savings.
If buying a house and starting a family are part of your goals and you live in a MCOL orvLCOL, do not go with the 33% rule. Don’t look at what you can afford, look at what is the minimum requirement for Apts that you have and look for Apts that can fit the criteria. When I first started living with my husband, combined we were making $225k and spent a whopping $950 on rent because the $950 apt fit our basic needs and requirements in housing at that time.
You’re young, use your money for investing and paying off that car loan, future you will thank you for spending $1000 on rent and putting the $1250 difference in a roth IRA or even a general investment account.
Personally, I use the 50/30/20 rule. Necessary living expenses should be no more than 50% of take home pay. That includes rent, utility bills, auto payment, insurance, groceries, minimum debt payments, everything.
I like this rule bc you can give yourself a little wriggle room on one thing by giving up something else. Want a nicer place that rents a little higher? Gotta get rid of the expensive car payment.
Get the cheapest place that’s acceptably comfortable to you.
But don’t underestimate the importance of having a place that feels good.
Also splurge a little more on comfort in the sense of more space or whatever else you like (such as on-demand water for infinite shower), because living with an SO can cause new stresses that you didn’t experience before.
So all of that figures into what is “acceptable” (it has to be acceptable long term; don’t get a place you could handle for a night or two in a pinch; get a place you can handle long term).
But within the range of acceptable, get the cheapest place you can.
My fiancé and I are very similar. Both got first real jobs and moved in together. We have a $100k take home before taxes, which somehow turns into around $5000 a month after insurance, 401k, and taxes. So please keep in mind that you will only see like 60% of your money.
We decided to go with a one bedroom for $1300 and usually end up closer to $1500 with utilities and internet.
We don’t regret a thing. Start small so you dont throw too much money away on rent. We have been able to save so much in such a short time and honestly loves the apartment. Sometimes the most expensive just isn’t the best. So I would say try to stay around $1500 if you can.
I would aim for $2250 or less. Maybe even $2000 to leave room for utilities. You could probably do a little more, but that should allow you to get off to the right start in terms of saving for retirement and starting your adult life.
Shoot for 30% of your income. That’s the rule in most places in the us.
I’d just stick to under $2000 and compare options (obviously, the lower the better financially). You are just starting out and really don’t need a luxury place so ignore things like “it has a pool though” or “a clubhouse” and just find something that’s comfortable, safe and meets basic requirements.