Renting an apartment or house isn’t just about looking through online ads, choosing a few apartments or homes you want to tour, filling out an application, and putting down a deposit. Those things are all necessary and important. But you need to get your financial house in order first.
Getting your financial house in order requires knowing what to expect and knowing the depth of ALL the different costs and fees involved.
So, where do you start? And how do you know what costs and fees to expect?
That’s what we’re going to help you with today.
We have formulated this article to be used as a guide. A tool you can use to set your expectations realistically. And it all starts with the 30% rule.
What Is the 30% Rule?
The 30% rule is a guideline that suggests you shouldn’t spend more than your gross monthly income (before taxes and deductions) on rent. That percentage includes the utilities (electricity, water, gas, and internet) and the rent.
- Example: If you earn $6,000 per month, you should budget approximately $1,800 for rent and utilities. Your monthly income times 30% = $xxxx.
How Did the 30% Rule Come About?
The 30% rule can be traced back to the U.S. federal housing policy in the 1980s. At that time, the Department of Housing and Urban Development (HUD) set a standard for rentals that recommended not spending more than 30% of your income on housing.
The purpose of this policy was initially meant to determine a person’s eligibility for housing assistance programs. It wasn’t meant to serve as a universal finance strategy. However, it gradually became mainstream. And it’s still frequently used as a rule of thumb in budgeting advice.
But is the 30% rule still feasible in today’s economic climate and the varying cost of living across different areas?
Try our Rent Budget Calculator to see how the 30% rule in action.
The Myth and Reality of the 30% Rule
While the 30% rule can be a great starting point, it’s difficult to apply it universally. People live in vastly different financial realities. And the 30% rule doesn’t account for all of them.
Why the 30% Rule Might Not Work for Everyone
The following scenarios will give you an idea of why the 30% rule won’t work for everyone.
- High Cost of Living Areas – In expensive cities, 30% leaves little left over for other essential expenses.
- Lower Income Individuals – For people with lower incomes, 30% might still be a significant burden.
- Lifestyle and Spending Habits – Individual spending habits and financial priorities vary greatly.
- Debt Obligations – Existing debt (student loans, car payments, credit card debt) significantly impacts affordability.
- Multigenerational or Caregiver Households – Housing needs and expenses can be much higher than average in these cases.
- Variable or Irregular Income – People with fluctuating incomes (like freelancers, gig workers, etc.) can’t reliably apply a fixed income percentage.
- Childcare Expenses – Parents (especially single parents) often spend much of their income on childcare.
- Stagnant Wages Versus Rising Rents – In many regions, wages haven’t kept up with rising rents. Therefore, 30% is no longer a realistic cap for decent housing.
Calculating Your True Housing Costs
When calculating your true housing costs, you have to look beyond just the rent. Rent is only one piece of the puzzle. You need to look at all the associated essential costs and their tendency to fluctuate. Doing so will help you avoid stress and unplanned debt.
Let’s take a look at the various costs and how to estimate them. We’ll start with the essential associated costs, then we’ll go over the less obvious but important costs.
Essential Associated Costs:
Utilities
Utilities could include gas, water, trash, sewer, internet, cable, and streaming services. Some of these services will fluctuate due to seasonality, usage patterns, rate changes, weather, and the characteristics of your apartment or rental home.
You can estimate these by collecting 12 months of utility bills. Calculate monthly averages for electricity, water, gas, etc., noting peak months. You can also check with your utility provider's websites or bills for rate structures. Other options include factoring in seasonal rates (electricity is generally 20-30% higher in the summer), using your utility provider’s website cost calculator, and utilizing apps like Energy Star’s Home Energy Yardstick to measure each appliance’s specific usage.
Renters Insurance
Renters insurance is extremely important. Just think about how much it would cost you out of pocket if you had to pay to replace all your belongings. Could you even afford it? You never know when theft, fire, or other damage might occur.
- True Story - At one of my properties, a 10-year-old child was home alone between the time school let out and her father got home from work. The child decided to play with some matches and set the building on fire. So, you see how easily something can happen.
The average cost of renters insurance is between $10 and $25 per month. A small price to pay, wouldn’t you say! Some landlords will require you to have renters insurance. Fortunately, most insurance companies offer discounts when bundling with other insurance needs.
Application Fees
Non-refundable application fees are usually required when applying for an apartment or rental home. They cover background and credit checks. And if you apply for multiple apartments or rental homes, this number can add up quickly. Most application fees range from $25 to $75 per application.
Security Deposit
Most or all of your security deposit is refundable when you move out of the apartment or rental home, provided it is left in the condition you received it (except for normal wear and tear).
Security deposits typically range from a few hundred dollars to one or two months rent. If there is damage to the apartment or rental home and/or you didn’t give the required written notice to vacate, some or all of your deposit might be non-refundable.
Potential Move-In Fees
Move-in fees aren’t the same as security deposits. Some apartments and rental homes charge additional fees like an admin fee, a one-time move-in fee, or other setup charges. These are generally non-refundable and cover things like key fobs, mailbox setups, building fees, document processing, etc. Move-in fees typically range from $100 to $500.
Parking Fees
In some cases, you might have recurring parking fees. Street parking might require a permit. You might be charged for garage, assigned, or covered parking. The parking fees vary depending on your location. But they generally range from $25 to $300 or more per month. And some apartments and rental homes also charge for gate remotes, access keys/cards, and other related fees.
Pet Fees and Pet Rent
If you have a pet, you can expect to pay a one-time pet deposit. It typically ranges from $200 to $500 per pet. Pet deposits are usually refundable if there’s no damage. However, some apartments and rental homes keep a portion of the pet deposit to sanitize the floors and the apartment or rental home after you move out.
You will likely also have to pay monthly pet rent. Pet rent usually ranges from $25 to $75 per pet.
Also, keep in mind that most apartments and rental homes have breed and size restrictions. So, don’t forget to ask about that before committing.
Less Obvious, But Important Costs:
Transportation
Where you live in relation to where you work could result in extra costs. So think about your commuting costs (gas, public transportation, tolls, parking, etc.).
Groceries
Will you have access to affordable grocery stores? If not, how much extra will the groceries near your new apartment or rental home cost monthly? Or, if you choose grocery delivery, the delivery fees and tips for those deliveries.
Household Supplies
When moving from one place to another, you will need to buy extra cleaning and household supplies. These things are an often-overlooked expense. Therefore, you will need to factor in the cost of toilet paper, dish soap, paper towels, cleaning wipes and sanitizers, light bulbs, etc. This initial bulk purchase could easily cost $100 and up.
Potential Maintenance and Repairs
While the landlord is usually responsible for maintenance and repairs, some minor costs might fall to the resident. You might have to pay for your light bulb replacements, batteries for your smoke detectors, appliance upkeep, air filters, etc.
Effective Budgeting Strategies for Renters
Consider using some of these popular budgeting tips and strategies.
The 50/30/20 Rule
Budget 50% for essentials like rent, utilities, groceries, insurance, transportation, and minimum debt payments. Ideally, your total needs shouldn’t exceed half your income. However, this might need to be adjusted if you live in a high-cost area.
Budget 30% for wants like dining out, entertainment, subscriptions, travel, and other non-essential amenities.
Budget 20% for savings and debt repayment. This category should include things like emergency fund contributions, retirement account contributions, and credit card and loan payments.
You might need to adjust these percentages based on your individual circumstances. For example, if you live in a high-cost area, you might do a 60/20/20 or 55/25/20 budget split. If you have low fixed expenses, you might be able to do a 45/25/30 budget split. The key is to maintain balance and make sure you’re not under-saving or overextending yourself.
Tracking Your Spending
One of the best ways to track your spending is to use one or more budgeting apps. Consider using apps like CreditKarma, YNAB (You Need a Budget), or EveryDollar. Depending on your preferences, you could also use spreadsheets or traditional notebooks to monitor your expenses and identify areas for potential savings.
- Pro Tip – Review 2–3 months of bank statements to identify your average spending by category.
Setting Realistic Spending Limits
Once you understand your income and current expenses, set limits (monthly caps) for each category, including housing. However, don’t set your limits so low that they are impossible to follow. Be realistic.
Prioritizing Needs Versus Wants
Your housing “wants” can quickly drive up your rent unnecessarily.
Let’s take a look at some examples.
Your needs, the things you shouldn’t waver on, should be things like a safe neighborhood, a reasonable commute, and nearby conveniences (banks, grocery stores, daycare centers, schools).
Your wants might be things like an in-unit laundry, special views, pet spa, concierge services, designer finishes, etc.
If you need help with this, think about whether the extra monthly cost for your wants would be better off going towards your savings or debt repayments.
Building an Emergency Fund
It’s extremely important to build an emergency fund if you want to maintain your current standard of living. Unexpected costs are inevitable. You could lose your job. There are rent increases and unplanned expenses. You might experience a medical emergency.
Strive to keep at least three to six months of essential expenses in your savings account. It helps to keep it in a separate account, so you aren’t tempted to spend it. Out of sight, out of mind!
- Pro Tip – Set up automatic transfers into your savings account. Even the smallest amounts add up. If you never see the money, you won’t miss it!
Considering Future Financial Goals
Factor in how your rental costs will impact your ability to save for a down payment on a house, pay off your debt, build your retirement fund, or achieve your other financial goals.
If your current rental costs make it impossible for you to achieve any of your future financial goals, you might need to make some adjustments or changes. Recommendations on how to do this are below.
Practical Tips and Tools
Using helpful tools and other financial planning tips will make it easier for you to make informed decisions.
· Budgeting Apps
Consider using budgeting apps like CreditKarma, YNAB (You Need a Budget), EveryDollar, Goodbudget, PocketGuard, or Honeydue.
· Ideas for Reducing Housing Costs
Consider getting a smaller apartment or rental home, getting a roommate, or choosing a more affordable location. You can also try negotiating whenever possible. And it always pays to be mindful of your utility usage.
· Unique Ways to Save Money
There are always ways to save money if you put some thought into it. Buy generic or store-brand products, dine out one less day a week, make your morning coffee and breakfast at home, and buy a water filter instead of buying bottled water. There are plenty of ways to save. Take a look at your lifestyle and make the necessary changes so you can afford the other, more important things in life.
When to Re-Evaluate Your Budget
It’s important to review your budget after major life events like income changes, getting married, having children, or setting new financial goals. Don’t just set it and forget it, or you will regret it!
