What Percentage of Income should go to Rent?

One of the most relevant and vital questions we ask ourselves when we enter adulthood is ‘What percentage of income should go to rent?’ If by chance you are trying to figure out how much your earn and how much percentage of your salary you should spend on your monthly rent then trust us, you are not alone in this world facing this problem.

But, well it is difficult to come up with a rule to figure out how much percentage of salary you should spend on monthly rent as it depends on innumerable factors such as your yearly income which includes pre tax and post tax income, how much money you decide to keep for your pleasure activities and much more.

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Gross Income vs. Net Income

Before you try to find out the percentage of your rent, let us understand the difference between gross and net income. It is vital to know the difference between the two of them. In order to calculate the gross income, you first need to comprehend how much you get paid by your employer under whom you work.Net come is a bit complicated term, but you need to know that it equals to the amount of money you get after initiating some deductions from the gross income you possess.

Monthly Income

You wish to get an idea about your gross and net income and also about your gross monthly income and net monthly income when you calculate how much of your income should go to rent and how much can be utilized for other expenses. This will give you a clear view about how money you need to accomplish all your activities.

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So, finally how much money you would require for your rent?

Though there are no rules to find out the percentage of income that should go to your rent , there are some vital guidelines which come could to your use.

Let’s have a look at some of the examples for that matter:

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Ronda Kaysen, The New York Times iterated that ‘the size of your rent check could mean the difference between a tight budget and an unsustainable one. A house that spends more than its thirty percent gross income on rent is said to be red-burdened. If you tend to spend more than half of your income on rental activities, you will undoubtedly be seen as rent burdened.

Kaysen iterates that a fin-tech firm named SmartAsset tried calculating your yearly income to afford a two bedroom apartment in different cities of the United States. In order to purchase a two-bedroom apartment with ease in San Franciso, you will have to make $216,129 each year and in the city of New York, you would need $158,299. That’s a lot, right?

Hope you liked the article. In case you face any doubts while reading the article, let me know.

(Featured Image Courtesy: Chartered Accountant Firm)