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The rule of thumb is that you should not spend more than 30% of your household income on rent. This means that if your combined household income is $10,000 per month, then your rent should be no more than $10,000 x 0.3, which comes out to be $3,000.
This 30% rule of thumb exists so that a household can cover their current expenses while also saving money. If your household is spending more than 30% of your income on rent, this can make it difficult to manage your current expenses while also securing savings for the future.
While the 30% rule is helpful to keep in mind, it can be difficult to stick to this rule for people who are cost-burdened by debt. For this reason, people with high student loans or costly debt payments should consider using the 43% rule.
Key takeaways
- Rule of thumb: Don’t spend more than 30% of income on rent, to cover expenses and save for the future.
- Cost-burdened by debt? Consider 43% rule: monthly housing cost + debt payments shouldn’t exceed 43% of income.
- To save for a down payment on a home, cut expenses by refinancing loans, getting a roommate, and creating a budget.
- Common expenses holding renters back from saving: eating out, online shopping, excessive utility usage, and subscription services.
The 43% rule states that your monthly housing cost plus your monthly debt payments should be no higher than 43% of your monthly income. Meaning, if your household monthly income is $10,000, then your total rent and monthly debt payments should not exceed $10,000 x .43, which is about $4,300.
Depending on your financial situation, it may be difficult for you to stick to either the 30% or 43% rule. If you’re a current renter hoping to own a home one day, saving for a down payment may prove difficult if you’re cost-burdened by debt or high rent expenses. If this is the case, consider cutting down on expenses so you can save for a down payment on a home.
There are many ways that cost-burdened renters can save money and reduce monthly debt payments. For example, refinancing student loans for a longer-term or lower interest rate can lower your debt payments. You can also consider getting a roommate to help cover rent.
Most importantly, you should take a critical look at your expenses. This will help you create a budget and cut down on spending. Some of the most common expenses that hold renters back from saving money are eating out, online shopping, excessive utility usage, and subscription services.
By reducing your spending wherever possible, you can more easily save for a down payment on a house, rather than blowing all your money on high rental prices. By buckling down on your monthly expenses, you can create a better financial situation for yourself in the long run.
Jacquelyn Sublett
I love teaching and writing on real estate, finance and mortgage topics. I find it fulfilling hearing stories of first time home buyers who we have helped with the home buying process. Writer for the Hero Homebuyer Programs™
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