It’s easy to fall in love with the first property you lay your eyes on, start envisioning your new existence there and before you know it you’re on your way to Ikea. Stop and ask yourself, “Just how much rent can I afford?” Here are some key factors to consider before taking the plunge into a new property.
The Rule of 40-A general calculation when budgeting your housing expense is to simply divide whatever your income is by 40 and that is what you can afford monthly. Therefore, if you make $40k per year your rent should be no more than $1k each month. This is just a general rule of thumb but it is definitely a worthy guideline.
Expenses-Your expenses that do not vary or fluctuate are going to be a major determination in how much rent you can afford. Things such as car payments, student loans, credit cards, insurance, etc. are monthly responsibilities that have to be accounted for in the whole financial picture. Additionally, you must account for utilities such as power, water, trash collection and the like. It is a good idea to call some of the local service purveyors to obtain an estimate amount for things such as gas and electric costs.
Lifestyle-Keep in mind any lifestyle changes that would be a product of committing to the rent amount in question. Do you go out to eat frequently? Enjoy shopping online? Entertainment venues? A serious consideration in deciding if you can afford the rent on a given property is asking yourself if it will require completely changing your lifestyle. If renting that city view loft forces you to live on Ramen noodles, I hope you like it an awful lot because your days of going out for entertainment are now a thing of the past.
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