{"id":50844,"date":"2021-09-29T20:57:17","date_gmt":"2021-09-30T03:57:17","guid":{"rendered":"https:\/\/www.movoto.com\/blog\/?p=50844"},"modified":"2021-09-29T20:57:17","modified_gmt":"2021-09-30T03:57:17","slug":"renting-vs-buying-how-much-should-you-earn","status":"publish","type":"post","link":"https:\/\/www.movoto.com\/blog\/renting-vs-buying-how-much-should-you-earn\/","title":{"rendered":"Rent vs Buy: how much should you earn?"},"content":{"rendered":"

There are a lot of good reasons to choose to rent<\/a> over buying a home<\/a>. Whether you are looking to move again in the next few years or are not financially ready to purchase a home, renting is a great option. With less expensive initial costs and flexibility to move sooner than you would after buying a home<\/a>, renting is superior if those are your circumstances.
\nJust as the question of \u201chow much house can I afford<\/a>\u201d often crosses into a homebuyer’s mind, the question of \u201chow much should I spend on rent\u201d occurs. When tackling this question, there is always the option to create your budget, but there are two schools of thought on the subject. These two ideas come from the perspective of how much you should take of your gross monthly income or your take-home income toward your rent payments. Looking at both of these will give you an idea of the prevailing wisdom for renting, and you can then judge how much you should earn based on that. Neither is perfect, but they are good guides to follow.<\/p>\n

The 30% rule<\/h2>\n

This rule dictates that you should not spend more than 30% of your gross monthly income on rent. It is a straightforward rule, but it only focuses on rent and excludes considerations for other necessities that will affect your monthly budgeting. In effect, all you need to do to determine how much you should spend on rent is to multiply your gross monthly income by 30%.
\nFor example, if your gross monthly income is $4,000, your rent should not exceed $1,200. This monthly rent cost leaves the remaining 70% or $2,800 for other necessities, like utilities and food, plus wants and savings. This tactic is also consistent with the practices of some landlords and property owners that require a renter to be able to pay for three months of rent with one month worth of pay. So, if you are looking to rent an apartment or home<\/a> that costs $1,200, the minimum you should earn as your gross monthly income is $4,000, or $48,000 annually.
\nThe main issue with the 30% rule is that it does not consider any other aspects other than rent. While you would satisfy the rule with $4000 as your gross monthly income, you may also have student loans or other debt. Based on your take-home income, you need to balance the rent, which is 30% of what you make before taxes, with all the other payments that you may have. All of these payments make a significant difference in the remaining money you have after rent, which can make things tight.
\nConsider that you will be losing about 20-25% in taxes before you are paid, making that $4,000 closer to $3,000. So, after rent, you have $1800 to split between utilities, food, debt, student loans, a car payment, gas, insurance, health care, and any wants you may have, like entertainment.
\nIt also fails to consider where you may need or want to live may be expensive compared to other areas, which will adjust the percentage. While it has its flaws, it is a guideline to consider when comparing your earnings versus rent payments.<\/p>\n

The 50\/30\/20 budget<\/h2>\n

\"Rent
\nAnother straightforward rule, the 50\/30\/20 budget evaluates the full range of your spending and plans how it should be allocated. The breakdown is:<\/p>\n