When you are looking for an apartment there are all kids of rent affordability calculators out there. Sadly, most of them are wrong by our standards. We will get into that shortly. When you are figuring out your monthly rental calculation you need to take into a few things that just aren’t seen on other rent calculators. So let’s dive into what you need and then you can fill out the rent calculator at the bottom and get a better grasp on your finances.
How do rental affordability calculators work
Most of the other calculators use your gross income and take your debts into account. From there they use a percentage of your gross income and less any monthly debt payments to get your monthly rent amount.
This is a good start but, in my opinion it misses the mark.
The issue with this is that using your gross income and not what you actually take home, which as we all know after our first pay check, we take home a lot less than what we earn.
The rule of 40
The quick calculation most other sites use is the rule of forty. They take your gross income, and then divide it by 40. That gives you your monthly rent amount. So if you are making $40,000 a year, then your rent can be $1,000 a month.
This is a good start but it doesn’t go deep enough.
As a quick chart, here is what your rent would be using the rule of 40
$40,000 = $1,000/ month
$50,000 = $1,250/ month
$60,000 = $1,500/ month
$70,000 = $1,750/ month
$80,000 = $1,000/ month
Rule of 40 Rent Calculator
While this method is quick, it can put you in a bind depending on your living expenses. There is a better way and we have it our rent affordability calculator.
What Costs You Need to Consider in Your Rent Affordability
There are several monthly numbers you should consider here they are so you can get a better grasp of how much you can safely afford in rent every month.
This is the amount of money you take home from your job on a monthly basis. If you are paid infrequently or have a work set up where it is hard to estimate how much you will be earning, it is best to assume a lower amount than a higher one. Look at it like it’s a base income amount for you every month.
This is where you put all of your monthly debt payments. This can be your car loan, your personal loans, student loans, credit cards etc… Any kind of debt payment that you make goes into this amount (It’s also good to know that many landlords will ask about this amount, as they don’t want to rent out a place to someone who cannot afford to make rent every month).
These are all the amounts that go into your living. Think of it as a catch all. In here you can enter your food costs, entertainment, subscriptions, anything that you spend money on in a given month.
Enter in all of your costs of getting around. This can include your transit passes, car insurance, maintenance, gas, repairs. If you have anything related to getting around it goes into this category.
As a renter it’s a good idea to have insurance on your possessions. Your landlord will have insurance on the building but it likely won’t cover your stuff should anything happen to it. You can ask your landlord about this. But for now enter in an amount to give yourself some room in your budget.
A good number to start with is 10% of your income, but whatever you do make sure you are putting away some money for your retirement. You’ll thank us down the road.
This is a good idea to have. In your place, you likely don’t want to be scraping by. That’s were reserves come in handy. Whether its for travel, or for an upcoming big repair, having some room in your budget every month to set things aside will give you peace of mind and help you sleep better.
The other amount is for any other items you think you may have forgotten. You never want to live close to the line and renting a place means things are going to cost more. So think of the things you may have forgotten. Will you want a pet, add new subscription services, parking spot, use this amount as your last attempt to make sure you have all of your financial items down.
How the Monthly Rent Affordability Calculator Works
Our rent formula is based on your income less all of your other expenses. Once you have that, you are set.
This means that you will have $0 left over at the end. Of course that means this rent number is more of a maximum amount than anything else but you can compare to the Rule of 40 to see how close you are. As an added bonus, by taking the time to get your numbers together you will be in better mental shape to rent a place because you will have your numbers together.
Use the calculator below to see what your possible rent will be.
Rental Affordability Calculator
Before you own a home, you will likely need to rent a place. This Rent Affordability Calculator is an easy way to calculate how much rent you can afford based on your take home income and see how much money you have after all of your expenses.