If you’re paying 35-40% (or more!) of your take-home income on rent, it will feel like you are stuck in a never-ending cycle: pay rent → rinse and repeat → think about why you are not saving → repeat some more.
Getting out of that cycle will require an enormous mentality shift:
Rent should not take all of your paycheck — it is meant to provide shelter, not choke you financially.
But, yeah, nobody told us that in school.
There is a sweet spot most financially sane people try to target:
- 25% of take-home pay = ideal
- 30% = still doable
- Over that = struggle mode activated
Using math that matters: If your after-tax monthly income is $6,920 then;
- 25% rent budget → $1,730
- 30% rent budget → $2,076
As long as you stay somewhere in that range, you still have some money left for things like:
- Emergency fund
- Pay down debts
- Saving for your own home
Not:
- Bills
- Ramen
- Hoping taxes just go away
Wait – Why after-tax income?
Because your landlord (nor anyone else) does not care how much money you make before the government takes their cut.
No one receives a discount for being single or because their state imposes an income tax. So ignore any salary figures on paper; simply look at what actually appears in your bank account.
Calculating Take Home Pay
While you can calculate it manually (if you insist on punishing yourself), it can be easier to just use an online paycheck calculator – which is what most people do. (SmartAsset has a decent one you can use).
When you set up the calculator, here are some basic input information you will need:
- Marital Status
- State/city you reside in
- Dependents you have
- Pay frequency → Monthly
- Annual salary (Annualized if hourly → hourly wage * hours/week * 52)
Example
- $25/hr * 40 hrs/week * 52 weeks = $52,000/yr
- Partner earns $57,000
- Household Income = $109,000
Then pow! The calculator will produce something like $6,920/month take home, or thereabouts depending on how taxes/shielding deductions play out.
Rent is going to be the typically the biggest item on your budget. If you are serious about attempting to build wealth—not just getting by—you’re going to need some of that monthly income left over to;
- Pay off Debt
- Set aside at least a small Emergency Fund
- And even eventually save up for a down payment for a house – because you want to have a house.
None of this happens if your rent is eating up half of your paycheck because your apartment has granite counters and a rooftop pool, which you never use.
A Reality Check Most People Want to Avoid
Having a safe, decent place to live is important. However, there is a difference between:
A place that meets your needs vs a place that you chose because it looks like something out of a Pinterest board.
One preserves your future. The other depletes it.
If your mortgage or rent is approximately 25–30% of your alone-take-home-pay, then your take-home pay should allow you to have some wiggle room to do things like:
- Save money
- Pay off bills/debt
- Prepare for life’s events (like buying a house—not just paying someone’s house)
Once you approach 35% to 40%, it becomes tough to envision any wiggle room and you are no longer working to build a life, but simply working to pay rent!
