If you’re a homebody who wants a more spacious living space all to yourself, a larger chunk of your income might go towards rent. But if you prioritize Friday nights at the club and weekend trips out of town, there’s no need for rent to account for 25% of your monthly expenditures. We don’t budge on the recommendation to stash 20% away for the future, but once that’s done, the rest is up to you!
Living in a big city comes with lots of big perks (dinner at Nobu, anyone?). But it also tends to go hand-in-hand with big rents. So what’s a HENRY to do—sacrifice creature comforts to save money, or pay up to live the way you want?
There are some crusty old guidelines that most financial advisors will counsel on this point, and we’ll cover that. But while the conventional wisdom is well, wise, it might not account for your own unique situation and values. Luckily, there’s a more modern and flexible approach to this quandary that allows you to eat your Levain and have it, too.
What percentage of income should go to rent?
First, the basic b*tch guidance: Most financial advisors will tell you that the first 20% of your take-home pay should go to saving for the future (retirement, buying a home, etc). Then, 25-35% of your take-home pay should go to rent. The rest goes to everything else— essentials like food and insurance, and the fun stuff, like dining out and Equinox memberships.
To be clear, this is sound advice. It’s just not always realistic for those who live in expensive places. A broom closet in San Francisco can cost more than a 4-bedroom house in Pittsville (yeah, that’s an actual place). There is simply no one-size-fits-all solution to the question of how much you should spend on rent.
Decide what matters to you
At Stash Wealth, we understand that people have diverse lifestyles, needs and wants, and we tailor our advice accordingly. So, here’s our take: Figure out what 25-35% of your take-home pay is. If you can’t get what you want in your area for that amount, it’s time to think about your priorities. Are your Saturday nights spent bar hopping, or on the couch with Netflix? Are roommates incompatible with your habit of drinking coffee in your underwear? The answers to these types of questions will guide you to how much you should actually budget for rent.
Not home much?
If most of your time and money is spent outside your apartment, then you may want to spend less money on your digs. Think renting a smaller, older space with fewer amenities, or getting roommates. You may not live in a palace, but you won’t be there much! Staying in that 25-35% range frees up your cash to be out and about, doing the things you love.
Homebody?
If you like to hang at home, though, you may want to consider spending more on a place you’ll really enjoy. Love to cook? Makes sense to pay up for an apartment with a nice kitchen. Work from home? You’ll benefit from a space where you can be productive long term (your bed does not count).There are other important reasons to pay more than the recommended amount on rent besides being a homebody.
Some people value a short commute, or are happiest when they live steps from the beach. If something significantly improves your quality of life, it’s probably worth spending a good chunk of money on.You may be able to spend as much as 50% of take-home pay on rent, so long as you’re still saving for the future and comfortable having less money for extras.
Example time
Let’s say you make $100,000/year. After taxes, your take-home pay will be closer to $78,000.* That means you take home $6,500/month. Applying the traditional wisdom, your rent should be between $1,625 and $2,275. Those of you living in pricey coastal areas are probably laughing at that figure. But hang in there.
We recommend saving 20% of your take-home pay for the future, and this is something we don’t budge on. In this example, that’s $1,300/month. This leaves you with between $2,925 and $3,575 left to spend on everything else. If you spend 50% of your income on rent, you’ll only have $1,950/month to spend on your other expenses. This may be a worthwhile tradeoff for you! It’s ultimately up to you and your priorities. Too much math for you? Look into getting a Stash Plan, and we’ll do it for you.
*Our take-home income calculation assumes a tax rate of 24% for the sole purpose of providing an example.
