How Much Rent?
We’re setting up our own households, maybe for the first time in a long time and now we’re doing it ourselves and we’re doing it on one paycheck. After we get over saying to ourselves “woulda-coulda-shoulda” it’s time to get down to business and ask the question “How Much Rent Can I Afford”?
Remember no more looking back we’re moving on and it's time to start looking for a new place to live.
All the conventional wisdom since the beginning of time has always said that rent shouldn’t be more than 25% of your Pre-Tax Income. Before you say “slow your roll…25% of my paycheck?” calm down ladies and pay attention. Note the operative words in that sentence are “rent” and “pre-tax”.
That rule is 25% of your pre-tax or gross income, not the take-home or net pay. This approach keeps you from spending too much on rent each month and leaves the money needed for the other things like food, clothes, saving for your emergency fund, and retirement.
But let’s be realistic, if you live in LA or any other major city, rent is more expensive than in a small town or somewhere that’s a 2-hour drive from work- maybe you can get away with stretching it to 28%-30%-MAX, but be clear with your numbers, remember we don’t do vague!
Follow the example below and you’ll see how important it is to stay in this guideline.
If a newly single sole provider has a Pre-Tax or Gross Income of $4000 per month- 30% of that will be $1,200.00. She’ll be safe with a rent of $1,200. In case you’re one of those helpless girls who say, “I can’t do math!”- shut up and go watch “Hidden Figures” on HBO.
After you watched the movie, remember this trick. Move the decimal point from behind the smaller number and put it in front of the smaller number, then multiply the new smaller number by the larger number and BOOM! - you are now Taraji P. Henson. You can do percentages.
Here we need to know 30% of $4000-
The equation will be 0.30 X $4000=$1,200.00.
In this example, her pre-tax monthly income is $4000 per month. Being conservative, her net pay or take home, after taxes and a deduction for the HMO for her and her kid is probably closer to $2900, less the $1,200 rent each month she’s left with $1700.
Don’t forget this part – 10% goes into the “6 months-worth of expenses” emergency fund or after that’s set up her retirement savings - that’s 10% off the top or $170 into savings:
PAY YOURSELF FIRST ALWAYS! $1,700-$170= $1,530.00
She’s left with $1,530.00 for grocery, electric, clothing, cable, car payment, car insurance, etc. childcare an occasional night out and something fun for the kids and every other bill that comes up. These numbers show how fast the paycheck is being spent and how important it is to keep the rent affordable, housing is the largest expense that most people have each month. If that’s out of line we’re screwed! Do the numbers and keep them in line.
This is real life, it shows how important knowing your numbers and earning are! Remember, last week when we talked about making your boss look like a Rock-Star… if you want to live in a bigger place or just breathe easier and not worry about money all the time- then you better start making your boss look like look like Beyoncé.