How much of your salary should go to your rent?
Finding a decent place to live can be a daunting task anywhere, but finding 12 months’ rent in advance is an additional burden faced by millions of Nigerians.
Landlords prefer large upfront payments as it reduces the chances of tenants defaulting. It is better to chase a tenant once rather than 12 times a year, goes the thinking.
However, as a tenant, setting away a particular portion of your monthly earnings, which will add up to your yearly rent once it has been accumulated for a year, is the greatest approach to ensure rent payment is not a problem.
But the issue still remains: How much of my earnings should I really budget for a rental apartment?
When your monthly rent payments are subtracted, you should have enough money left over for bills, food, some discretionary spending, and even savings. How much of your money should be allocated to rent each month is shown below.
How much of your salary should you set aside for rent?
The 30% limit
The 30% rule, which states that you should spend no more than 30% of your gross monthly income (your monthly income before taxes) on rent, is a widely used budgeting guideline. Since 1981, when it was discovered that those who spent more than 30% of their income on housing were “cost-burdened,” this has been the general rule of thumb.
Why you shouldn’t spend over 30% of your income on rent
If you have to spend over 30% per month on rent, you’ll have less money left over for bills and important purchases, making it more difficult to build savings. Make sure that your monthly rent payments don’t prevent you from paying off debt or loans: your rent shouldn’t cause you to fall deeper in debt.
If 30% doesn’t work for you
The 30% rule does not always perfectly align with your budget. When determining how much you can reasonably pay in rent per month, there are some other things to consider before you say no.
Try the 50/30/20 rule
The 50/30/20 rule is a popular method to follow when determining your expenses in your monthly budget. The rule entails spending 50% of your monthly income on essential expenses such as rent, monthly bills, and groceries, spending 30% on non-essential purchases such as going out to eat, and putting 20% into your savings account. If your rent pushes above 30% of your gross income, by limiting your monthly bills, you may be able to keep rent + bills less than 50%.
Tidy up your spending habits
If you frequently eat out at restaurants, spend money on entertainment, or travel, consider how these expenses affect your monthly budget. If you would rather live in a more spacious apartment or more appealing neighborhood, cutting back on these extras can help you afford your new space.
Think about where you live
If you live in an expensive area, you may have to spend more than 30% of your monthly income on rent. To maintain a balance in your monthly budget, find ways to decrease your spending in other areas to live comfortably or find other areas to live in for less.
Following the 30% guideline, if your monthly salary is around N150,000, you must set aside N45,000 each month to go into your rent account, which will total N540,000 at the end of the year.
If you make N150,000 a year and discover that your annual rent costs exceed N540,000, it may be time to use a shared apartment or relocate to a less expensive area.
In conclusion, take into account your monthly income and costs when deciding how much you should pay on rent. Rent should not take up more than 30% of your monthly income, and your budget should account for all related expenses. Determine what you can afford and how much you want to save before deciding on a rent amount. Once you choose the appropriate rent, you may concentrate on increasing your funds to achieve your long-term objectives.