Let’s talk about rent. Are you wondering how much to spend on rent? Read on to find out.
Why do I rent?
Like many of us, housing is the biggest cost out of my budget each month. I live in inner-city Sydney, in a trendy area and it is not cheap. I often get asked why I don’t own a home and pay a mortgage instead, especially since I am a finance blogger.
The truth is, while I’d love to live in a home I own – it isn’t the right time for me. Sydney is impossibly expensive. So, I’d want to buy in Melbourne where the median house price is just under one million dollars. As frugal as I am, that would require over $185,000 upfront including all costs. That’s a lot of money.
Even if I came up with the cash, I’d still struggle to get approved for a mortgage of $900,000. This is as I still am paying off my HECS debt/student loan which significantly reduces how much you can borrow.
However, I am going to buy a cheaper investment property so I can own some real estate without bankrupting myself. You can read more about how and why I’m buying an investment property:
You can also read on how to invest in real estate without actually buying it by reading my article on REITs:
That’s why I rent. With that in mind, let’s move on to how much to spend on rent.
How much to spend on rent?
A common guideline is that you should not spend more than 30% of your pre-tax income on rent.
While this is a good baseline, it definitely depends on your situation. You may pay more than 30% if you live in inner-city Sydney or Melbourne (like me) because it is expensive. The main reason I spend less than this percentage is due to sharing an apartment with another person. If you live on your own, renting in high cost of living cities can be astronomical.
Personally, I’d say if you can pay your rent and bills comfortably and can still save at the end of each month – don’t be stressed about spending more than 30%. However, if you are struggling with your finances then it may be time to look at strategies to pay less rent.
Why should you save on rent?
It is important to save on rent where you can for a few reasons. Firstly, being one of the biggest expenses in a budget, it makes a big impact.
Let me tell you about my experience as an example. My current apartment is my second home in Sydney, being much cheaper than my previous place as I wanted to save more money. It is a little further away from work and I am now sharing a bathroom so it is a downgrade.
However, just by paying less rent I save the equivalent of my entire grocery budget for the year.
This is why saving on big fixed costs like housing and transport is so powerful – it makes an astronomical impact on a budget. I knew that cancelling my Netflix subscription for example, would be a drop in the bucket. Therefore, by focusing my energy on reducing my rent instead – I made a real impact on my finances while keeping the fun things that make me happy.
For example, by selling my car I saved $5,334 in one year – you can read my article on it by clicking below.
That is a massive cost saving in my budget that I simply couldn’t get otherwise. Prioritise saving on these costs if you can, so you can spend more on the things that give you joy.
Cancelling your Netflix subscription or not buying coffee will only save you $500 a year while paying less rent could save you $5,000.
How much do you spend on rent? Is it under or over the 30% figure? I hope this article gave you some insight into how much to spend on rent and why it is so important to keep this cost down!