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I'm fortunate enough to have saved a lot of money over the years, and have nothing specific that I'm saving for (it will be at least a few years before I start a family). This is great of course, but it does make certain financial decisions difficult.

I've lived with roommates in a really nice place with below-market rent for a long time, and am finally looking to get my own place, and I'm struggling with what my budget for rent should be. Based on my current rent and salary, rent is about 8% of my gross income, and I save about 2/3 of my take-home pay.

Sure, I could get as cheap a place as possible and keep saving this much, but that will be a huge downgrade for me. I feel like I've "earned" a pretty nice place by paying such a small percentage of my earnings in rent for many years. I am pretty good with money and save for a nice dinner here and there, I don't have a very luxurious life.

But I'm having trouble determining an upper bound for what I should pay, because honestly, if I paid $X, or $X + $1000, or $X + $2000, I wouldn't really notice the difference. Sure, at some point in my life, I'm sure I'd say "oh, it would be nice to have that $20,000 back" but I could say that about any amount.

I guess my main point is that unlike someone who is living paycheck to paycheck and has a very strict budget and thus can pretty easily calculate what they can afford for rent, my choice seems really arbitrary.

I don't want to "pay as little as I can" (which would realistically be about 4% of my gross pay), and I know I'm not going to pay the maximum that NYC landlords will allow (based on the requirement that my salary is 40 times the monthly rent, that puts my absolute max at 30% of my gross pay). So how do I decide between 10%, 15%, 20%, or whatever?

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    Pick your place based on factors other than money. You probably have a neighborhood you like, or friends in a certain area... If you have money as less of a constraint, why not see what you like first and then figure out whether you're willing to afford it?
    – THEAO
    Sep 18, 2013 at 14:43
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    Yeah, I definitely do. Actually I'm concentrating on a very specific area already - but there's still a wide range of places (and prices) there. The main problem is what I'm "willing to afford," like you say. By some definitions, I could "afford" a $10,000/month apartment, and obviously I'd be able to find something I like at that price. But by that logic, I'd be able to "afford" to pay $5000 for a t-shirt (in that I won't "notice" the missing money) and obviously I'm not going to do that. So how do I decide if my max should be $2500, $3300, or $4100, for example?
    – Jer
    Sep 18, 2013 at 16:59
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    With your response, I almost wonder whether we're going to end up paraphrasing the Cheshire Cat from Alice in Wonderland... "How much should I spend on rent?" ... "That depends a good deal on what you want to rent." ... "But I have money and don't much care how much." ... "Then it really doesn't matter..." If you have the luxury of money not being as much of a constraint, then figure out what you want. And then see if you're willing to give up that much each month. And if you are then rent it.
    – THEAO
    Sep 19, 2013 at 9:54
  • "...see if you're willing to give up that much each month" - This is precisely the difficult part for me :) Once I get out and see more places in person (still a little early for that because it will be at least 2 months before I move) this will hopefully become easier... I mean, I know what I would want if every place was free - but like you say, it's just deciding what I'm willing to pay. That's the crux of my question.
    – Jer
    Sep 19, 2013 at 16:39

3 Answers 3

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Comedy answer The McDonalds corporation thinks about $600 or 30%

The real answer is:

Whatever you can part with and still have money left over for the rest of your budget. Don't consider your savings, consider your monthly income.

This type of question is exactly why you need a budget. A budget isn't just a tool for getting out of debt, it is a tool to help you understand your money and show you how much to spend on stuff.

So based on your costs (utilities, food, shopping, auto expenses, savings, etc) how much is left from your monthly income? That would be what you can afford in rent.

Also, please notice that I still suggest you save money each month. You have a great habit going and to lose it now would be a shame in my opinion. Maybe while you are planning a budget, you can start to roughly plan for buying a house, or having a new car fund, or having a pile of money for starting a family. (Along with an emergency fund and a fully funded retirement.)

You don't have to save 2/3, but save a dime of every dollar at least. Two dimes is better. In the future, you will probably find it easier to spend more money rather than less; and you will never get back the chance to save.

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  • Well, there'd be a lot left over. I do have a budget, and I spend about 25% of my take-home (after 401k) pay on all expenses/entertainment except for rent. Currently my rent is 15% of my take-home, so I save 60% of my take-home (and about 2/3 if you count 401k). If I saved 20% (instead of 60%), and spent the rest on rent, that would be so high that I'd never even consider it. The range for rent that's in my mind now is roughly 25-35% of my take-home (leaving me saving 40%-50% of my take-home). What bothers me is this just seems random and arbitrary and that it's not really based on anything.
    – Jer
    Sep 19, 2013 at 16:58
  • @Jer - it isn't arbitrary, but it is personal. Clearly 60% is too high. Work out your budget and see what number doesn't feel too high. Also, congrats on doing such a good job saving and managing your money.
    – MrChrister
    Sep 20, 2013 at 13:23
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When you say that you are not sure 'what amount of money would make a difference in the future', it indicates that you have not clearly identified your long term financial goals.

Consider monthly budgeting to be one of the stepping stones to long term financial planning. How much you can 'afford' depends not only on your savings and income, but also your future expenses. If you want to buy a house in 2 years, for example, you may want to scrimp and save just a little longer, to secure a larger down payment. If you want to retire early, then similarly saving money now should bring you not short term financial wealth, but long term security.

How much you can 'afford' will depend on how your current financial situation matches up with your future goals. The rules of thumb you listed (ie: % of income) may be good starting places, but that doesn't mean they are the right answer for you, in your current situation.

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  • Note that it's been 3 years since the question was asked. If the OP did want to buy a house 2 years after asking the question, that would be 1 year before your answer...
    – stannius
    Dec 13, 2016 at 19:22
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    @stannous Ah - sometimes I miss how old a question is when it gets dredged back up to the main page from someone's edit [in this case I believe another answer was made and deleted].
    – Grade 'Eh' Bacon
    Dec 13, 2016 at 19:36
  • I almost answered it myself.
    – stannius
    Dec 13, 2016 at 19:56
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Gail Vaz-Oxlade has a budget calculator here that shows how much of your monthly net income should be allocated where. She recommends 35% for housing, 15% for transportation, 25% for life, 15% for debt repayment, and 10% for savings. Some people spend more then they make and her budget sheet helps get things under control for those people. For someone like yourself who seems to have things under control, this budget sheet can be a guideline for you. Play with the percentages if you like, and keep your spending under 100%.

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    -1. I was going to upvote this, but then I got to the part where you recommended rental properties. Concentrating one's savings into a single asset class (real estate) entails significant risk. You could have just left that part out -- the OP sought budget advice, not investment strategies.
    – Chris W. Rea
    Sep 18, 2013 at 21:01
  • @Chris, You are correct, the OP did not ask for investing advice. Deleted from the answer. The topic of relative risk of single-asset class investing is a whole different set of conversations.
    – Jerry Penner
    Sep 19, 2013 at 16:02
  • Re: "a whole different set of conversations" -- exactly. Thanks for the edit. I removed my downvote.
    – Chris W. Rea
    Sep 19, 2013 at 18:19

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