What Percentage of Income Should Go to Rent?

6 Min Read | Published: May 29, 2024

A man and woman sit on the living room floor surrounded by boxes, contemplating their budget for rent and living expenses.

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The 30% rule states that renters should spend no more than 30% of their gross monthly income on rent, but this rule may not work for everyone.

At-A-Glance

The 30% rule is a popular guideline that states you should spend no more than 30% of your gross monthly income on rent.
Landlords may also use this guideline when assessing a potential applicant.
However, while it can be a good rough guideline, it may not be right for every situation or housing market.

If you rent a property, it’s important to determine how much of your monthly income should go toward rent payments. One popular guideline that’s used by renters and landlords alike is the 30% rule. This rule states that no more than 30% of your gross monthly income should go toward rent.¹ But what if this rule isn’t right for you?

In this article, we’ll look at some common guidelines that can be used when determining rent affordability as well as tips for improving your rent-to-income ratio.

How Much of Your Income Should Go to Rent?

To understand how much of your income should go to rent, it’s important to look at your rent-to-income ratio. Your rent-to-income ratio explains what percentage of your income will cover rent.

Common guidance says that your rent-to-income ratio should be 30%, but this isn’t always feasible for everyone.

To calculate your rent-to-income ratio, divide your monthly rent payment by your gross monthly income, which is how much you earn before taxes and other expenses.

Let’s say your rent is $2,000 per month, and your gross monthly income is $4,000 per month. In this scenario, your rent-to-income ratio would be 50%.

The ideal rent-to-income ratio depends on your unique situation and factors like your other expenses and goals. However, it’s important to note that 30% has long been considered the standard and is still used by many landlords when assessing potential applicants’ eligibility.

With the 30% rule, the idea is that you’ll be able to comfortably cover your housing costs as well as your other monthly expenses while saving money to meet your short-term and long-term financial goals.²

What If the 30% Rule Doesn’t Work for You?

While the 30% rule is common guidance, it may not be right for everyone, and you may find that it doesn’t make sense for your particular situation. Here are a couple of examples of situations where the 30% rule might not work:

If You’re a High Earner
If you make $25,000 per month, you can spend $7,500 on rent, per the 30% rule. However, spending that much money on rent may not be the best option. In fact, it could make more sense to put your money into buying a house or investing for retirement.
If You Live In an Expensive Market
In certain markets, housing costs are high, and it may be very difficult to only spend 30% of your income on it.

An Alternative to the 30% Rule: The 50/30/20 Budget

If you determine that the 30% rule doesn’t align with your personal goals and finances, and find a landlord who may be willing to compromise, the 50/30/20 budget could be a good alternative. With the 50/30/20 budget, you allocate 50% of your monthly income toward rent, utilities, groceries, and other essential expenses, 30% on non-essentials like entertainment and dining out, and 20% for savings or debt repayment.³

If your monthly gross income is $5,000 and you decide to follow the 50/30/20 guideline, here’s an example of how you’d divvy up your money:

$2,500 for rent and other essential expenses
$1,500 for non-essential expenses
$1,000 for savings, debt payments, and investments

To learn more about building and managing a monthly budget check out this video:

Tips to Improve Your Rent-to-Income Ratio

These tips can help you reduce your expenses or increase your earnings, allowing you to improve your rent-to-income ratio so that you can increase your chances of getting approved for a rental, and have more money to allocate toward your financial goals.

Explore All Your Options
While it may be tempting to commit to the first rental you like, it’s a good idea to shop around and consider other available properties that fall within your budget. This allows you to choose the one that represents good value.
Change Your Job Situation
If you believe you’re not earning enough to lead the lifestyle you’d like, it may be time to start a job search. You can also ask for a raise or promotion at your current job. Another option is to consider working remotely so you can save on gas and other expenses.
Cut Unnecessary Expenses
Carefully review your credit card bills and bank statements. Get rid of any products or services you no longer need or use, like a gym membership or cable, for example.
Negotiate With Your Landlord
Don’t be afraid to ask your landlord or property manager for a discount. In some cases, they may be willing to grant one to you if you are willing to sign a longer lease or agree to pay for a few months of rent in advance.

Frequently Asked Questions

The U.S. The Department of Housing and Urban Development considers tenants to be rent-burdened if they spend a high percentage of their income on rent. This can make it challenging to afford other essential expenses. A rent-to-income ratio of 50% or higher is considered to be a severe rent burden.⁴

A low-rent-to-income is one indicator of financial stability. However, there are other factors to consider as well. Debt, expenses, and savings are other important aspects of your financial health.

In addition to rent, you should set aside money for renters insurance and utilities. You may also have other housing-related expenses, like parking fees.

The Takeaway

The 30% rule states that you should spend no more than 30% of your gross monthly income on rent, but this rule may not be right for everyone. Finding ways to reduce your rent or increase your monthly income can help you to improve your rent-to-income ratio.

^1,2,3 “How Much of My Income Should Go Toward Rent?,” Experian

⁴ “What Is Rent-to-Income Ratio?,” MoneyGeek

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Anna Baluch is a personal finance writer from Cleveland, OH. She enjoys helping people from all walks of life make smart financial decisions. Her work can be seen on Credit Karma, Forbes, LendingTree, Insurify, and many other publications. Connect with Anna on LinkedIn.

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.

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