How much of your salary should you spend on rent?

If you are looking for renting a place there are a lot of decisions you need to make, like how close do you want to be to the work or to your family or to your friends? How much space do you need? Are you going to live alone or with roommates? Once you are clear with sense of where you want to live and how you want to live, its time to start thinking about what renting a place will actually cost you and what you can afford.

Now the two biggest cost you are going to have will be monthly expenses and your move in cost. Now to determine rent amount, you need to figure out your monthly expenses. So, first you need to decide what your budget will be. A decent guideline for figuring out what you can afford is something called 30% rule. Basically,you take 30% of your gross income which is your total income before taxes. Allocate that to your general housing expenses. That’s not just a rent, it also includes your utilities, insurance and other cost associated with the house.

Everyone’s situation is different. If you have student loan or any other debt to pay, then you might want to spend less on your housing. Or if you live in city where rent is high such as Mumbai the you might not able to afford more because you can use public transport and won’t have the typical cost that come with a car.

30% Rule of thumb:

According to 30% rule of thumb, suppose you have a monthly salary of Rs 40,000, so in this case your budget would be Rs 40,000*30% which equals to Rs 12,000 per month. Not this doesn’t mean that you go and start looking for the spaces which comes under Rs 12,000. Here you must first think about the other monthly expenses you have addition to rent. The biggest monthly expenses going to be utilities that is electricity, gas, water, etc. let’s assume your monthly utility expenses costs you around Rs 2,200. So, your net amount for the rent would be approx. Rs 9,800 per month (12000-2200) which may or may not be enough. If its too low, then one possibility would be splitting your housing expenses with roommates.

So, there are a variety of expenses you may want to think about in addition to the rent which you have to think before planning.