How much should I spend on rent?


Renting is an increasingly popular way of living, particularly amongst young adults. According to a recent Australian Institute of Health and Welfare report, renters account for just under a third (32%) of households. 

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While paying rent is more accessible than buying property, it’s essential to ask, “how much should I spend on rent?” Missing your monthly rent payment could have consequences for your living situation and even your credit score. 

A good rule of thumb is to spend 30% of your money on rent. This comprehensive guide will tell you all you need to know about the 30% rule. You’ll also find advice on how to cut costs and save money on rent. 

Let’s get to the most common frequently asked questions:

  • How much rent can I afford?
  • What percentage of my income should I spend on rent?
  • How accurate is the 30% rule?
  • How to calculate your rent-to-income ratio?
  • How to save money on rent?
  • How to cut costs elsewhere?

Q1: How much rent can I afford?

You should be able to afford rent without over-stretching yourself. That’s why you should spend no more than a third of your monthly income on rent. 

With the money left after your rent payment, you need to cover the rest of your expenses, and this might include debt repayments, food shopping, and money for social occasions. 

Spending too much a month on rent can bring rental stress. To stop that from happening, either use an affordability calculator or work out what you can afford to pay yourself. 

Q2: What percentage of my income should I spend on rent? 

It would help if you aimed to spend around 30% of your gross monthly income on rent. Your monthly gross income is the money you make before tax deductions. 

Working out 30% of gross income is easy, and all you have to do is multiply your gross pay by 30%. Do so by converting the percentage into a decimal. 

If, for example, you make $2,000 a month, you would multiply that by 0.3, and this works out to be $600. 

As a result, no more than $600 a month should come out of your bank account for rent. Ideally, though, you should keep your rent payments even lower, if at all possible. 

Important: If you spend more than 30% of your income on housing, this could be considered a sign of housing stress. Housing stress often makes money management far more complex. 

Renting with a partner 

The same rule applies when you’re renting a house or flat with a partner. All you have to do is add your income to theirs. Then, to work out 30% of your combined income, multiply by 0.3. 

The percentage of your income spent on rent will give you an insight into the price range you can afford to rent. 

Note: It’s worth noting that living expenses are cheaper when split between two people. However, you should still avoid paying more than 30% of your joint income on rent. Any extra money you have at the end of the month could instead go towards investing.

Renting in a flatshare 

If you’re planning on sharing a flat, you should each apply the 30% rule to your portion of the rent. It’s far easier to find a great flat at a reasonable rental cost if you rent as a group. 

Unfortunately, renting on your own is rarely affordable. Those on a modest wage and people planning to settle in expensive cities like Sydney will find it most difficult. 

Q3: How accurate is the 30% rule?

While helpful, the 30% rule has some flaws. For one thing, it’s an American rule that is part of the 1937 National Public Housing Act. So, it might not be the most accurate for modern-day Aussies. 

For another, it doesn’t take into account inflation. Spending 30% of income on rent when inflation is so high isn’t necessarily a good idea. 

It would be best if you also thought about your take-home pay. If taxes are high and living costs are expensive (which they will be in a capital city), you might not have much left to put towards rent. 

As such, it’s essential to consider your financial situation and make your own budgeting rules. If you have student loans and other debts to pay, inflated expenses and additional outgoings, you should tweak your calculations. 

Q4: How to calculate your rent-to-income ratio? 

You might currently rent and want to know what percentage of income goes towards paying your rent. If that’s the case, you need to calculate your rent to income ratio, and doing so will show you whether you’re sticking within the 30% rule. 

Rent-to-income ratios are easy to work out, and all you have to do is divide the amount you pay on rent by your gross income. 

Let’s say your rent is $500, and your income is $2,000 a month. You have to divide 500 by 2,000, which gives you 0.25. When you convert this to a percentage, you’ll see that you spend 25% of your income on rent. 

Q5: How to save money on rent? 

Depending on your contract, it isn’t always easy to find a property with reasonable monthly rent or weekly rent. But saving money on rent is possible. 

You could, for example, rent with flatmates. As mentioned earlier, it’s easier to rent within budget if you spread the costs with friends. Or, you could downgrade, and doing so might give you the breathing room you need to start saving. 

Another option is renting out your car parking space if you have one. And, if all else fails, consider renegotiating your rent. If you agree to extend your contract, your landlord might reward you with lower rent.

Note: Spending less of your monthly income on rent can improve your personal finance. So, if you’re saving up towards a target housing price or similar financial goal, it’s worth considering. 

Q6: How to cut costs elsewhere? 

It may not be possible to keep your spending on rent below 30% of your income, and if that’s the case for you, you might have to cut costs elsewhere. Here are a few key ways to do just that. 

Consolidate debt 

Lots of people spend too much on their debt repayments without realising. The good news is that it’s easy to find a cheaper alternative by consolidating your debts

With a debt consolidation loan, you can pay off all your existing debts at once. So, you’re left repaying just one loan. Not only is this more manageable, but you can often find better interest rates and loan terms. 

You could, for example, consolidate your car loan, home loan, and credit card debt into one personal loan with a great fixed-rate or variable rate interest. 

Important: Use the WeMoney price comparison platform to look for the right debt consolidation loan for your circumstances. We’ll help you find an outstanding loan from a credit provider with an Australian credit licence.  

Create a weekly budget 

By managing your average weekly spending, you can put your weekly income to better use. 

First, add up your outgoings, including things like life insurance, loan payments, and memberships. Then, set spending limits for your housing costs and food shopping. To stick to your limits, keep an eye out for discounts on particular products. 

Whatever you have leftover should go towards creating an emergency fund and building up savings. Ultimately, you need to have enough in your saving accounts to cover living expenses if you lose your job. 

Note: You should also put money towards a house deposit and other key savings goals if possible. 

Join a financial community 

Joining a thriving financial community is arguably the best way to keep your financial goals on track. At WeMoney, we pride ourselves on offering expert advice, plus, we provide people with varied financial situations the space to help each other out. 

You might be considering taking out a new line of credit or working towards real estate and retirement savings. Whatever your circumstances, the WeMoney community is here to help. 

In summary

Overspending on rent can have long-term implications for your finances. But, with our guide, you should have all the knowledge you need to stop that from happening. 

For more advice on everything from rent to credit card usage and new credit products, visit the WeMoney website. Or, use our loan calculators to find credit providers with a credit licence and great offers. Our platform is your one-stop-shop for all things financial. 

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Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs, or financial situation.

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