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RENTING—BUDGET 25 PERCENT OF YOUR GROSS SALARY (MAXIMUM OF 30 PERCENT)

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When you’re looking for the best place to rent, you must make so many tradeoffs. Here are a few:
▪ Old versus new
▪ Apartment versus house
▪ Distance to work
▪ City versus country versus suburbs
▪ Roommate or not
▪ Include utilities or not
▪ Size of rental (e.g., studio versus one bedroom)
How do you make your decision? Let’s face it: Cost is the overriding parameter. If you could have
everything you wanted without thinking about affordability, then you would. The secondary
consideration will always be location.
So, how do you figure out what you can afford? Use a simple rule: Budget 25 percent of your gross
salary. This should allow you flexibility in managing the rest of your expenses. If you really want to
stretch, then you can go to 30 percent of your gross salary. However, if you do this, you will have to
make other tradeoffs in your lifestyle. You just can’t have it all.
Let’s look at an example. Your gross salary is $48,000 a year. Thus, you should spend $12,000 a year
(25 percent of your gross salary) on rent. This allows for $1,000 a month on rent. Obviously, the type
of apartment/house you can rent will vary significantly depending on where you live.
If utilities are included in the rent, then you can afford a little bit more than $1,000 a month. In
addition, if you can spend less than the $1,000 in rent, you should put the amount you save in a
savings account for a future down payment on a house. As an example, when I made $48,000 a year, I
spent only $550 a month in rent and saved the difference.
Just remember, there will always be tradeoffs in where you live. Make sure you are finding the place
that suits both you and your budget best.

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