It is easy to overspend on rent because you think that you deserve to live in the best neighborhood or a bigger house even when you cannot afford it. You may be living in a house you cannot afford because of peer pressure or because of your liking for finer things in life but, until you can afford that square footage, you should find a rental space you can comfortably afford.
Even without the help of the best tax accountant Toronto, you can still determine your best affordable rent by considering the following:
- Mathematically speaking
There is a 30 percent rule that has been used for years to determine just how much you should pay as rent annually. While some people stretch it and others spend less than 30 percent in rent, 30 percent remains the standard. You need to know that the 30 percent needs to cover not just the monthly rent but also your utility bills. You should incorporate other house-related expenses and insurance.
- Come up with a budget
You should assess your income first by looking at the exact amount you bring in annually. Other than your salary, you should consider bonuses, interests, dividends and other means of income associated. Out of your earnings, you should spend about 60 percent of your budget on housing, food, and transportation. You also need to take into account emergency funds, entertainment, your retirement fund, and insurance.
- The 50/30/20 Rule
According to this rule, you should spend 50 percent on fixed costs, 30 percent on the day to day expenses and 20 percent on your financial goals. This rule may not apply to everyone because, at some point, you’ll need to focus on saving more towards your retirement.
- Personal comfort
Just because you need to pay a particular percentage of rent doesn’t mean you should. If you are comfortable living in a low-rent neighborhood but spending more money on transportation, that is up to you.
Also, when looking at comfort, you should look at the location of the house. If you prefer living in the big city and one of the best condos available then it means that your rent will be high. In most cases, you will spend less on transportation so, you will still be comfortable with the high rent.
Another factor to consider when talking about comfort is kids. If you have kids, then you have to take into account the cost associated with their education, entertainment, daycare and medical bills.
For utmost financial comfort, you have to set realistic budgetary expectations. When in doubt, make sure your rental spend doesn’t exceed the 30 percent standard.
- Additional expenses
Once you move into your new place, you will realize that there are expenses you hadn’t accounted for. You will need money for furnishings and other necessities like electronics and cookware. You have to make sure you can afford them alongside your rent.
The answer to how much you should pay as rent depends. It depends on your income, your budget and what really matters to you!