How much of your annual income should you use as rent?

Posted by Felix Okoli on Friday March 21, 2014 at 9:16:0:

The issue of house rent is one that a lot of people worry about when the time comes for making payment. For some people, they have to take a loan from the bank or place of work just to pay rent while others may borrow from friends. Perhaps, only a few number of people who plan their finances well actually take money out of their savings without feeling much of the pain of paying for their rent.

How much to set aside for rent from a person’s yearly income has always been a major challenge to a lot of People. Some People spend much more than they earn on their rent because they want to maintain their Social status, while others live in Apartments way below what they earn per annum.

Knowing how much to budget for your rent will help you know the amount left for your savings and to solve other needs.

This article will discuss or help your know the proper amount that is advisable to spend on your rent from your yearly income.

How much is ok to sacrifice as rent?
Some Financial Experts advised that your income per month is expected to be 40 times higher than your monthly rent. This means that if your rent per month is N5,000, your annual income should be N200,000, and this means that the amount you are expected to spend on your annual rent should be N60,000.

While other Financial Experts advised that you should spend just 30% of your annual income on your rent. What this means is that, if your yearly income is N200,000, you are expected to spend N60,000 which is 30% of the total amount.

From the above advises and examples, it can be deduced that the two groups of Financial Experts were only trying to say the same thing but used different terminologies. Whether it is 40 times your monthly income or 30% of your annual income, it just saying that 30% of the amount you earn per year is the ideal amount to be used for rent, and this leaves you with 70 % to save and sort out other basic needs.

Before paying your house rent, it is important that you take out time to calculate the total amount that you earn per Month or per Annum, and then set aside 30 percent to be used for rent.

SOME FACTORS TO CONSIDER WHEN CALCULATING THE AMOUNT TO BE USED FOR YOUR RENT:
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- Your annual income: How much do you really make per year? If you are the only person contributing to pay rent, then it should be a port of your income and if you are 2 or more, then it should be a part of your total annual income. One needs to know the actual amount of income that would be contributed annual to offset rent.

- Know that when calculating your total annual income, the final figure you get should be after you must have deducted your tax. Don’t include your tax money when calculating because you will get it all wrong. After removing your tax, the remaining amount is your incomes and it’s 30 Percent of it that is the amount ideal for your rent.

- While setting aside money for rent, it is important to also put into consideration other house expenses apart from the actually rent, like water bills, electricity bills, security bill which you are also expected to pay.

It is good to point out that just because you got promoted or you got a raise in your job does not necessarily mean that you should to pack into a new apartment and pay higher rent. As long as your current apartment is good and comfortable, you can remain there while you invest the extra cash into other ventures to generate more income.