How much should money should be allocated to rent, and how much rent is too much?
Did you know that nearly one-third of Australian households rent their homes? And the number has been on the rise for the past decade!
Over the past year, rental prices have been on the rise across the nation and vacancy rates are at historic lows.
Alongside this trend, rental prices in Melbourne have surged to unprecedented levels, with record highs being reported for the past 17 months.
Given the fierce competition in the rental market, it's understandable that renters are grappling with the question of how much of their income they should allocate towards rent. To determine this, you may consider using one of the rent-to-income ratios available. Let’s have a look:
💡The 30% rule
One popular standard for budgeting rent is the 30% rule, where you spend a maximum of 30% of your gross income on rent. To calculate this, start by working out your after-tax income, and then subtract all necessary expenses such as food, transportation, and utilities.
The amount left over after those expenses will give you an idea of how much you can afford to spend on rent each month.
Example: If you earn $3,200 per month before taxes, you should spend about $960 per month on rent.
💡Under 30%
The 30% rule is a general guideline that renters can follow, but you should also consider other expenses and factors. For example, if you have credit card debt or student loans to pay off, it may be a good idea to find an apartment with rent below 30% of your monthly income, so you can put more of your budget towards reducing your debt.
💡Above 30%
If you’re spending more than 40% of your income on rent, you could be experiencing rental stress.
Therefore, it's essential to consider your financial situation and goals carefully. By considering your income, location, and other expenses, you can find the right balance between affordable rent and achieving your financial goals.
Renting can be an excellent option for many, providing flexibility and convenience. By following these guidelines and considering your unique circumstances, you can make sure you're spending the right amount on rent.
TEAM SONI CAN HELP
If you are a renter looking for guidance to secure your first home and not sure where to start, Team SONI can help.
Book your free Wealth Consultation today. A simple chat with our experts can clarify your questions and give you the confidence you need to get started: