The 50/30/20 Budget Rule
The 50/30/20 rule states that you should spend no more than 50 percent of your income on essential living expenses, 30 percent on non-essential daily expenses, and place 20 percent into a savings account or retirement fund. Variations of this rule can be made based on personal lifestyle choices and income, but this is a financially responsible guideline.
It’s recommended by financial advisors and landlords alike to spend no more than 30 percent of your income on rent. Most landlords require you to meet this 30 percent threshold to be approved for an application. This number only considers base rent, not the other fees you will have before and after move-in day.
The Real Cost of Renting
To gauge just how much you will be spending on rent every month, consider other recurring payments as well as one-time expenses. Utilities, pet fees, and parking are just a few monthly costs you may overlook when deciding on a budget. Application fees, administrative fees, and security deposits may also take out a chunk of your income before you even move into your new apartment. Let’s break these down and see how much extra you could be spending on top of your base rent.
Utilities
Depending on your property, some utilities may come bundled with your rent. These basic utilities can include water, trash, or internet. If you’re responsible for setting up your own utilities, you may have to pay anywhere between $50 and $100 (depending on where you live) to get these services up and running. From then on, your monthly utility bill will depend on your usage.
Some properties may even offer a flat utility rate. A flat utility rate (or a fixed rate) is a billing structure where the customer pays a set price for their electricity every month. These rates are popular because the customer pays the same amount no matter how much energy they use. This can help you stay on budget and eliminate any potential increased fees.
It’s important to communicate with your landlord or property manager and read over your lease before signing to ensure that you understand whether you’re responsible for setting up and maintaining your utilities or if they’re included with your rent.
Move-In Costs
Move-in costs are one-time fees that you will pay before you move into your apartment. An application fee is what you’ll pay the day you decide to apply to rent a property. The price can range from $25 to $100 depending on the property, location, or rental type. Administrative fees may be added to cover tasks such as preparing your leases and getting the apartment ready for move-in.
Most properties will expect you to pay a security deposit and first or last month’s rent. The security deposit is a refundable payment that will be returned to you upon move-out if there is no damage to the unit. The security deposit also acts as protection for the property in case of unpaid rent. First or last month’s rent may be required by your property on move-in day to ensure that you have enough immediate income or to protect the property against vacancy and damages. The total amount depends on the property’s policies and the results of your background check and credit screening.
Monthly Extras
Monthly fees are fees that you will pay in addition to your base rent. These fees vary depending on your property and lifestyle, but some of the most popular monthly extra fees are parking fees and pet fees or deposits.
Some properties charge parking fees, especially if you’re living in an urban area. These prices can range anywhere from $50 to $300 depending on whether the spot is covered or reserved.
Pet fees are monthly payments required by some properties if you’re renting with a dog, cat, or other pet. Pet deposits differ from this payment and are sometimes refundable if you leave your unit in good condition.
Renters Insurance
Renters insurance is a type of insurance coverage offered to renters that covers your personal property, liability, and additional living expenses. With renters insurance, your belongings are safe from theft or damage, you’re protected from liability costs that may occur inside or outside of your property, and if your rental becomes uninhabitable, renters insurance will fund your displacement until your home is habitable again. There are different types of renters insurance plans that range in prices and offerings. It’s important to do the research and decide which one is the best for you and your lifestyle.
How to Calculate Your Total Cost
Now that you’re aware of additional fees beyond base rent, you can calculate the total cost of your monthly rent payment. This simple framework can help you keep track of your expenses and plan your budget accordingly.
- Base Rent + Utilities + Renters Insurance + Pet Fees + Parking + Move-in Costs = Total Monthly Housing Cost
Pet fees, utilities, parking, and certain move-in costs may not be applicable to every renter, so add together all the expenses that apply to you to estimate your total monthly housing cost.
To know if you’re choosing the right rent or not, ask yourself if you can still save money, if you can handle an emergency, or if the home fits within your long-term plans. Understanding your full housing costs helps you choose an apartment that supports both your lifestyle and financial well-being.
This article was originally published on May 20, 2016 and has been updated.
