It is fairly easy to figure out which features you want in a house or apartment. However, when it comes to determining how much property you can actually afford to rent, things get a bit trickier. You need to consider your budget and how much you are willing to spend on housing expenses versus disposable income. Read this three-step guide to figure out how much you can afford to spend on rent this year.
Do The Math
First, you need to calculate how much you should spend based on your income. A general rule of thumb is that you should spend about 30 percent of your income on your monthly rent, according to Apartment Therapy. Thirty percent is a good rule for most people, since it allows you to pay your rent and housing expenses, while also having enough money for living and entertainment expenses, as well as money to put aside for retirement and emergencies.
In order to calculate what you can afford, simply divide your combined annual income or salary by 40. For example, if you make $80,000 per year, divide this salary by 40 to reach the ideal amount of $2,000 per month. This is a simple way of calculating 30 percent of your monthly income. Thirty percent of $80,000 per year would equal $24,000 and if you divide that annual amount by 12 months, you would achieve the same number: $2,000 per month.
It is best to make this calculation using your take-home pay rather than your salary, so that you are taking into consideration the taxes and withholdings taken out of your paycheck every month. You should also make sure that this figure covers all of your housing costs, including utilities, insurance, maintenance and repairs.
It’s All About Personal Comfort
Next, you should determine whether you would prefer to save your money on a more long term financial goal like retirement or travel or buying property or if you would like to spend more on rent in order to be truly comfortable in your home. Once you have calculated how much you can afford based on your income, you can decide whether to spend or save.
You should take several factors into consideration when making this decision. For example, do you have any financial or savings goals that you would like to reach? Do these goals take priority over getting everything you want in a house or apartment? If you are dreaming about early retirement and world travel, it is probably best to scrimp on your unit now, so that you can save as much money as possible. The same goes if you are looking into saving your money up for a down payment on a dream home. Simply choose a lower cost unit and save those dollars to help yourself reach your financial dreams.
On the other hand, if you live in a large city with a high cost of living like New York City, you might need to pay more in rent just to get by. However, you will ultimately save on expenses like transportation.You need to decide whether or not it is worth it to scrimp on other general living expenses and if you are willing to pay more money on your unit in order to get the features that you want. If you are in the process of looking for property in Malaysia, check out a listings site like PropertyGuru Malaysia.
You should also just take into account all of your living expenses, how they work into your budget, and how that will affect how much you can afford to pay. For example, if you have kids, they likely come with a number of expenses that affect your budget, including private school, daycare, and diapers.
While the mathematical guideline of dividing your annual take-home income by 40 is a good starting point, you should ultimately take into account your regular living expenses, financial goals and desired level of personal comfort when deciding how much of your budget to spend each month. Figure out how much you are willing to spend on general living expenses, entertainment, necessary expenses like groceries and gas, as well as savings, then determine how much you can afford on housing, based on your budget. You should take into account credit card payments and insurance as well, according to WiseBread.com.
Think About The Details
When you finally begin the apartment search, you should take into account not only rent, but also additional housing expenses, like utilities, maintenance and repair fees, renters’ insurance, TV, and internet. These additional expenses could end up adding a large sum to your monthly payment, so keep that in mind. Even if you are able to afford your monthly fees for the place, you may not be able to afford the additional costs associated with leasing.
It might be worth it to look into living with roommates, especially if you live in a city with a high cost of living. Make sure that if you do choose to live with roommates, you find roommates who are compatible socially, financially, and in terms of day to day living. For example, you might get along with your best friend, but could you live with him or her? Before moving in with a friend, determine if he or she is able to pay for everything in a timely manner. Also find out if he or she is a night owl or an early riser and what their bathroom and shower habits are, as these factors could make or break a roommate living situation.
If you are leasing for the first time and need to use some of your income to purchase furniture and decorations, then it is probably best to choose a lower cost house or apartment to begin with, so that you can spend some of your take home pay on furnishings for the first few months. Factor these upfront costs in before deciding where to live.
Now that you’ve read our three-part guide for deciding how much you can afford, you are now ready to look for your apartment or house. Happy apartment searching!
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