Figuring Out What You Can Spend on Housing

At some point in their young adult life, nearly everyone will have to figure out how much they can afford to spend on housing. But where to begin is so unclear.

There are a few different ways to think about your housing expenses.

The average American spends 37% of their (pre-tax) income on housing costs. It’s pretty common to aim to spend 30-33% of your gross income on housing.

Income x 30% = ideal maximum amount to spend
So multiply the total amount you make by .3
Your income x .3

Hint – you can use Google as a calculator

In other words, if you and your partner make $60,000 a year combined, you may aim to spend $20,000 or less on housing costs.

That isn’t just rent. Housing costs include rent or mortgage payments, utilities like heat, homeowners’ or renters’ insurance, and other household expenses, like furniture and cleaning supplies.

We recommend living as cheaply as possible for as long as possible. That will likely mean having multiple roommates, living in a secondary location, having less space or amenities (like a dishwasher).

Living this way won’t only allow you to have more money to spend on other things, but hopefully make it easier to start saving. If you can build up a small savings account, no matter how little you can squirrel away, it will help you plan for emergencies and be better prepared for future spending.

@jetstreamrebecca

Because I wish someone had told 23yo me how to start figuring out what you can afford in rent. #rent #HousingCosts

♬ original sound – Rebecca Jetstream

Of course, housing costs vary wildly depending on where you live. People in cities tend to spend more of their income on housing. This is particularly true in some of the cities with the most available jobs, like San Francisco.

@jetstreamrebecca

Another way to look at creating a housing budget goal #budget #ideas #HousingCost

♬ original sound – Rebecca Jetstream

Lastly, don’t forget that you’ll need to save up for various extra costs when you first get a new place. You often need the equivalent of multiple month’s rent to get a new apartment. First month’s rent, last month’s rent and a security deposit equal to one month’s rent is all pretty common. Plus moving itself can be expensive.

Some housing options may have different costs. Let’s say there’s an application or broker’s fee for one apartment but not another. You should include those costs when you are deciding which place is better for you.

Let’s say place A costs $1000/month with no added fees and place B costs $900/month with an $1000 broker’s fee and a $100 application fee.

If both require first month’s rent, last month’s rent and a security deposit equal to one month’s rent, you’ll need $3000 to move into place A and $3800 for place B.

At the end of one year, they will cost nearly the same ($12,000 vs $11,900), including fees. If you live in each place for three years, you will spend $2500 less on place B.  

I am not suggesting there is a right and wrong answer here, just factors to keep in mind.

Have questions or comments about the video? Please let us know.

Consider Checking Out Our Educational Videos

Controlling your finances isn’t about how much money you make. It’s about creating good habits to set you on a path to a stable future.

We’re here to help, not with services or offers, but with information about how the financial system works. Check out all of our videos below or get started with these suggestions.

Leave a Reply

%d bloggers like this: