Housing is one of the largest expenses that people fork out a month. Whether you rent or own, your mortgage or rent can leave you strapped for cash. You should always determine how much you can afford before you decide where you are going to live. But how much should you be spending on housing a month? Below are 5 things to consider when determining how much you should and can be spending on housing each month.
The 30% Rule
A general rule of thumb is to spend no more than 30% of your income on rent. So if you are making $2,000/month you should be paying about $600 for rent. Of course, if you only need one bedroom and you don’t mind sharing with roommates, you can spend less than that a month. If you have a small family and you need a couple of bedrooms, you might be paying more.
Remember Other Expenses
Depending on your other debts and bills, the amount that you can afford might be less than 30% of your income. Make sure that you factor in all of your monthly costs as you determine how much you can spend on housing each month.
Decide What is Important
Housing prices differ drastically based on factors such as space, amount of bathrooms, neighborhood, distance from the freeway, surrounding shopping centers, how close public transportation is, quality of apartment, etc. Decide which of these factors is most important to you and which ones you are willing to sacrifice on. For example, apartments that are a little bit further away from freeways and public transportation can be as much as $50 less than their next-to-the-freeway counterparts. Also, ask yourself how much quality are you willing to sacrifice for cost?
Factor In Cost of Living
When you are deciding where to live based on your budget, make sure that you factor in cost of living. Groceries and fuel will be more expensive closer to city hubs than it will be in suburban areas. If you work downtown, is the extra 30 minute commute worth paying less on necessities every month?
Think About Utilities
When you are calculating how much you can afford on housing, make sure that you think about utilities as well. The more space you have, the more you will have to pay to heat or cool the area. Of course you can save on utilities by turning down the thermostat and making sure that you keep the lights off, not paying for premium cable, or internet, etc.