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generationfourt · Sep 15, 2006, 01:00 AM

After taxes I make about 2k a month. What percentage of that should be going to cover a lease?

I've been doing the math and although I will have an extra $600 at the end of each month it seems like 750-850 is just way too much to be spending on rent alone.

I'm debating if I should find a roommate (ugh) or spend more to live alone.

goMac · 01:27 AM

No more than half is the general rule.

Edit: To append, the rule iirc is no more than half on living expenses.

D. S. Troyer · Sep 15, 2006, 01:26 AM

one week i heard.

generationfourt · Sep 15, 2006, 01:35 AM

Originally Posted by goMac

No more than half is the general rule.

Edit: To append, the rule iirc is no more than half on living expenses.

what exactly do you consider living expenses? just rent + food + utilities, or all of my other bills as well?

El Gato · Sep 15, 2006, 02:04 AM

One week take home.

n8236 · Sep 15, 2006, 02:16 AM

I also heard it shouldn't be more than 1/3 of ur paycheck (as a maximum).

GSixZero · Sep 15, 2006, 03:54 AM

Well, I think it depends what your priorities are. If you want to live somewhere nice, and are willing to take that out of another part of your budget, that's fine.

If your living situation tends to drive you nuts, then it might be worth to spend a little more. If you don't tend to mind, spend less, and have more fun with the savings.

With all that said, I wouldn't spend more than $700.

itai195 · Sep 15, 2006, 04:34 AM

If you're saving 30% of your take home pay each month then you are well ahead of the curve. At that point, you need to determine if 750-850 for rent is reasonable in your area and whether the benefits of not having a roommate are worth $375-425/mo to you. For me it would be! There aren't really magical percentages that tell you what's right and wrong. It depends on your area and your personal situation. For example, I guarantee that very few people could live in the Bay Area spending no more than half their income on living expenses, many people here spend half just on housing. Better to budget and then make a plan for short, medium, and long term goals and do what you need to achieve them. For another example, it may be worthwhile to have a roommate for a couple years so you can save enough to buy a home.

Mastrap · Sep 15, 2006, 06:49 AM

One third of your take home pay.

legacyb4 · Sep 15, 2006, 08:27 AM

Yup, old rule of thumb is 1/3... not sure if the banks who loan you money have changed that to string you out on the debt habit ;-)

Originally Posted by n8236

I also heard it shouldn't be more than 1/3 of ur paycheck (as a maximum).

medicineman · Sep 15, 2006, 09:22 AM

Originally Posted by generationfourt

After taxes I make about 2k a month. What percentage of that should be going to cover a lease?

I've been doing the math and although I will have an extra $600 at the end of each month it seems like 750-850 is just way too much to be spending on rent alone.

I'm debating if I should find a roommate (ugh) or spend more to live alone.

Lending company mortages usually look for one week's take home pay. Over the years that has risen to 10 day's worth (1-1/2 weeks). That's a pretty good measure.

teknopimp · Sep 15, 2006, 11:34 AM

Originally Posted by Mastrap

One third of your take home pay.

what i've heard is one-third of gross pay, which more or less amounts to half of your take home pay.

Josh Reid · Sep 15, 2006, 12:10 PM

These rules sound right, unless you live in Manhattan, where you can easily expect to spend 60% of your earnings on your apartment. (Not counting your regular living expenses, I'm talking rent only.)

The Godfather · Sep 15, 2006, 12:37 PM

1/3 of your take-home earnings. Also, don't move too far from your workplace. Take into account fuel cost, assuming $4/gallon.

itai195 · Sep 15, 2006, 12:40 PM

IIRC, mortgage lenders use your gross pay, not your net, when calculating that 1/3 percentage. I think it's actually 36% for total housing costs, but I don't remember it exactly. They have gotten pretty lax on that rule these days.

Monique · Sep 15, 2006, 01:09 PM

I think it depends of the quality of your living quarters. I live in a lousy building and I do not pay a third but it is not worth it. Now, if it would be a better place I would agree to pay it.

Railroader · Sep 15, 2006, 06:02 PM

40%

But I'd go cheaper and look into buying a house as soon as you can. You're just giving your money away while renting.

Zeeb · Sep 15, 2006, 06:08 PM

Originally Posted by Railroader

40%

But I'd go cheaper and look into buying a house as soon as you can. You're just giving your money away while renting.

Unless the total rent you pay is less than the interest that acrues per month on the place you're buying. In which case you are choosing who to give your money too.

ghporter · Sep 15, 2006, 06:16 PM

I think it would be important to consider where you live (city) and what the market is like. Check out the rent range for similar apartments (same number of bedrooms and amenities) for your area and you might find out that you're actually paying less than other people. But know the market before you decide anything, even the "quality" of your apartment compared to what you "might" find. Know the market.

Railroader · Sep 15, 2006, 07:30 PM

Originally Posted by Zeeb

Unless the total rent you pay is less than the interest that acrues per month on the place you're buying. In which case you are choosing who to give your money too.

Or you could buy the house with cash like I did. Then you're only paying taxes and insurance.

I have a lot of landlord friends who like your kind of thinking. You forgot about equity. That usually tips the scales.

itai195 · Sep 15, 2006, 07:36 PM

Originally Posted by Zeeb

Unless the total rent you pay is less than the interest that acrues per month on the place you're buying. In which case you are choosing who to give your money too.

You're right that buying doesn't always make more sense. It's not quite so simple as comparing interest payments to rent because homes can appreciate, there is a mortgage interest tax deduction, and rents tend to increase annually. Rents in my area have increased over 10% since a year ago.

Andy8 · Sep 15, 2006, 08:02 PM

Originally Posted by Josh Reid

These rules sound right, unless you live in Manhattan, where you can easily expect to spend 60% of your earnings on your apartment. (Not counting your regular living expenses, I'm talking rent only.)

Ditto for Hong Kong. If your living in a DINK arrangement generally one of you will spend almost 100% on rent and the other will cover living costs and entertainment. (assuming that housing is not being covered by your employer) This can allow you to move up from a matchbox sized apartment into a shoeboxed size one

Spliffdaddy · Sep 15, 2006, 09:09 PM

Add up all your recurring debts (credit, school loans, utilities) and include 20% of your take-home pay for retirement savings. Out of what's left, try to spend less than half on rent. Ideally, you want to have a savings account that's funded to the point where it can cover your basic living expenses for 3-6 months if you suddenly don't have an income.

Unless renting is your long-term plan, you'll want to be able to save enough money for a 15% down payment on a house. And that's gonna hurt. If you're already saving 20% of your income for retirement, and you also want to save 10% for a down payment - then 30% of your take-home pay is spoken-for.

The only solution to "not enough money" is to either spend less or make more. Neither solution is fun.

RAILhead · Sep 15, 2006, 09:37 PM

25-35% is what most (all) financial planners recommend.

D. S. Troyer · Sep 15, 2006, 10:41 PM

Originally Posted by Railroader

40%

But I'd go cheaper and look into buying a house as soon as you can. You're just giving your money away while renting.

Yeah...get in on the bubble burst. YeeeeeHaaaa!!!!!!!

Railroader · Sep 15, 2006, 10:45 PM

Originally Posted by D. S. Troyer

Yeah...get in on the bubble burst. YeeeeeHaaaa!!!!!!!

Only if they are as smart as you are.

Where you been rolling them old bones around lately?

simonjames · Sep 16, 2006, 02:08 AM

I used to work at a mortgage funds provider and we wouldn't lend to anyone with a debt service ratio higher than 25% of your nett salary. Swap DSR for rent and there you have it. Mine is 20%.

But where you live and how much you pay on rent is a life style choice - and it is you who must choose it.

For me:-
1. I can't stand sharing - done it and it didn't work for me.
2. I've chosen not to buy as where I want to live the places are way too expensive and I prefer to spend my money on vacations - every 2 years my partner and I spend about 6 weeks overseas and we don't backpack.
3. I save 14% of my gross salary to a pension fund as I won't have an asset to live off when I retire
4. I've chosen to live in an apartment near the sea (10 minute walk to the beach) - lifestyle choice. The apartment is nothing flash but is 3 bedrooms and feels like home.
5. You never know what life will serve you - my partner has had serious heart problems for the last 3 years and one of my best friends died a few years back at the age of 41 from stomach cancer. "Live life like there is no tomorrow" may sound cliched but (IMO) it is good advice.

good luck

generationfourt · Sep 16, 2006, 03:45 AM

thanks guys, lots of great advice. I guess the smartest thing to do would to find a decent roommate. I'm trying to do more sidework and ultimately be doing my own thing and I guess I'm going to need the extra money for that as well.

I haven't even been able to check some places out yet. I will next week and see what my options are.

PER3 · Sep 16, 2006, 06:02 AM

My rent just got put up from $800 to $1100, so now I'm paying about 60% of income on rent.

Two years ago, it was $500 (at the same place).

Still, at least my landlord hasn't raised the rent in proportion to the real price of the property.

molala · Sep 17, 2006, 05:39 AM

I hadn't had roommates for years until a couple of years ago. If you find good ones, then it's great, better than living on your own. You just have to choose wisely. I prefer to save money on vacations too.

Goldfinger · Sep 17, 2006, 05:43 AM

Originally Posted by PER3

My rent just got put up from $800 to $1100, so now I'm paying about 60% of income on rent.

Two years ago, it was $500 (at the same place).

Still, at least my landlord hasn't raised the rent in proportion to the real price of the property.

Is that legal ? Doesn't your contract specify how much you pay every month ? I'd move if I were you. 60% of your income is way too much to spending on rent.

Monique · Sep 18, 2006, 11:17 AM

Originally Posted by Goldfinger

Is that legal ? Doesn't your contract specify how much you pay every month ? I'd move if I were you. 60% of your income is way too much to spending on rent.

Places like Russia now and where I live in Calgary; there are no laws that would prevent a landlord or owner to charge you whatever they want for rent. And I can relate to my Russian friend. I am afraid that they will raise my rent from $575. for a small bachelor to $1,000. Then it would be 50% of my income.

Ozmodiar · Sep 18, 2006, 02:22 PM

Currently I spend 18% of gross pay on rent (or 24% of net pay).

itai195 · Sep 18, 2006, 02:26 PM

Originally Posted by Monique

Places like Russia now and where I live in Calgary; there are no laws that would prevent a landlord or owner to charge you whatever they want for rent. And I can relate to my Russian friend. I am afraid that they will raise my rent from $575. for a small bachelor to $1,000. Then it would be 50% of my income.

Sometimes we forget how spoiled we are in the US. Do you sign a lease for your apartment or is it month-to-month? Out here if you have a lease they can only raise the rent if/when you renew the lease... In some places they are limited as to how much they can raise the rent per year.

To the OP: if you don't mind having a roommate then that's a great idea, as long as you save the extra money. You'll save oodles of cash that way

Monique · Sep 18, 2006, 03:03 PM

Originally Posted by itai195

Sometimes we forget how spoiled we are in the US. Do you sign a lease for your apartment or is it month-to-month? Out here if you have a lease they can only raise the rent if/when you renew the lease... In some places they are limited as to how much they can raise the rent per year.

To the OP: if you don't mind having a roommate then that's a great idea, as long as you save the extra money. You'll save oodles of cash that way

I am month to month, but rules are very different from one province to the other. We do not uniformed laws in this country. In Quebec and Ontario owners can only raised their rent 1.4% a year. But, in Alberta we have no laws to protect the consumers on any levels.

Dakar · Sep 18, 2006, 03:07 PM

Apparently I'm using 20% of my gross.

Calimus · Sep 18, 2006, 03:22 PM

Looks like 14% for me. Though my wife is quiting her job to stay home when we have our baby. It will shoot up to around 20% of take home then.

We're looking into a house though, but want to get enough saved to avoid PMI which should be soon(hopefully before or near where the housing market hits bottom and starts upward again).

BRussell · Sep 18, 2006, 03:48 PM

Originally Posted by itai195

If you're saving 30% of your take home pay each month then you are well ahead of the curve.

Originally Posted by Spliffdaddy

Add up all your recurring debts (credit, school loans, utilities) and include 20% of your take-home pay for retirement savings. Out of what's left, try to spend less than half on rent. Ideally, you want to have a savings account that's funded to the point where it can cover your basic living expenses for 3-6 months if you suddenly don't have an income.

I agree with itai's and Spliffdaddy's thinking on this - to think just in terms of a percentage of income really misses the point. You need to save save save! so make sure you can cover your living expenses and still save a good chunk of change for both long-term (retirement) and shorter-term purposes. If you find that you can't do that, something needs to change, whether it's rent or purchasing Macs or something else.

PER3 · Sep 18, 2006, 05:31 PM

Originally Posted by Goldfinger

Is that legal ? Doesn't your contract specify how much you pay every month ? I'd move if I were you. 60% of your income is way too much to spending on rent.

I totally agree that 60% is too much to pay, but here the figure is determined by the local market, and if I want to continue to live where I am, well then, I'll have to pay the local rates.

Even as it is, I'm a long-term resident, so I'm getting a discount. My landlord's other tenant is paying $2000 per month for a similar two-room flat.

PER3 · Sep 18, 2006, 06:00 PM

Originally Posted by Goldfinger

Is that legal ? Doesn't your contract specify how much you pay every month ? I'd move if I were you. 60% of your income is way too much to spending on rent.

Just as a sidepoint—very few things here are negotiated by the law. Mostly, the law works to the advantage of the privileged classes. Even the police—according to a recent study of theirs—think that their main job is to protect wealthy people and that it is fair game to plant drugs.

My contract specifies nothing apart from my wages and tax.

Which is 13%.