# What Is The Maximum Percentage Of Net Spendable Income That Should Be Set Aside For Housing?

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The standard rule of thumb for how much you should spend on housing is to budget 30% of your net income. Net income is your income after taxes, which is why this number is a little lower than actual take-home pay.

There are good reasons for this recommendation. It represents a balance between being in a financially comfortable place and moving to a new home that costs slightly less than one’s total net income.

It also prevents one from spending more than 75% of their total net income on housing and other expenses that involve direct financial sacrifice, like transportation or food.

This article will discuss the reasons why the 30% standard may no longer be adequate and how to determine an appropriate new level for yourself.

## Determining what your rent should be

As mentioned before, the maximum amount that someone should pay for housing is one-third of their net spendable income. However, this amount is not applicable to everyone.

It is dependent on the individual’s income and other expenses. For example, someone who makes a lower income may have higher expenses in other areas such as transportation or utilities.

Therefore, the amount they should devote to housing must be higher than one-third of their income. The same goes for people who make a higher income; they can afford to spend more on housing due to their excess spending capacity.

The average rent in America is \$1,012 per month according to Numbeo. This means the average American spends about \$10,240 per year on rent which is approximately 9% of the national median household income according to CNN Money.

## Calculating your recommended rental amount

As mentioned before, one of the biggest factors when deciding on a location is the cost of living. The cost of living is determined by looking at the average housing cost, utilities, transportation, and food.

Housing is a big factor in determining the cost of living, so let’s look at how to calculate your recommended rental amount based on your income.

The formula for calculating your recommended rental amount is: 2/3 x gross annual income = 2/3 x annual income – (2/3 x essential household expenses).

Essential household expenses are things like rent or mortgage payment, insurance payments, and utility bills.

This calculation assumes that you spend two-thirds of your gross annual income on these expenses. If you do not spend that much, then you will have extra money to put towards housing.

## Consider a buffer zone

A buffer zone is the amount of money you should have saved in addition to your monthly housing expense. The buffer zone should be equal to one month’s worth of housing expenses.

This savings account should be used only in the event of a sudden and major change in your living situation. This could be due to a job relocation, a family member moving in with you, or a drastic increase in rent or home value.

Having a buffer zone for housing will ensure that you can make the necessary changes without any worry or stress. It will also help you adapt to these changes more easily because you will have already prepared for them.

The size of the buffer zone depends on your individual needs and preferences, but the general rule is that it should be equal to at least one month’s worth of expenses.

## Know the basics of renting

Before you start looking for a place to live, you should do some research on the basics of renting. This includes understanding the different types of rent arrangements and what to look for in a rental unit and landlord.

The two most common types of rent arrangements are monthly rent and weekly rent. In the case of weekly rent, it is important to do math prior to agreeing to the rental so that you are not paying more than one week’s worth of income in rent.

In addition, it is important to know your rights as a tenant and what your landlord can do. For example, most landlords have the right to enter the property at certain times to make repairs or show it to prospective tenants or new tenants.

These tips are helpful for both renters and new renters so that they are aware of their rights as a tenant.

## Look at long-term stability

Although most people consider their homes to be their greatest investments, housing is also one of the biggest expenses people face.

The average American pays about 30% of his or her income on housing. However, this percentage may not be the best gauge for determining what you should pay for housing.

Because housing costs vary so much depending on location and quality, a better minimum is between 1 and 2 times your monthly income. This means that you would pay no less than \$1,000 per month (or \$12,000 per year) for rent or mortgage payments, plus taxes and insurance.

This guideline comes from The Money Coach, and it helps prevent someone from spending more than what they earn each month on housing. It also helps protect you from having to move due to financial stress.

## Consider neighborhood characteristics

The AHA recommends that housing should take up no more than 10% of a household’s net spendable income. This is the maximum percentage of income that should be spent on housing costs including mortgage or rent, taxes, insurance, and utilities.

By default, the AHA assumes that the average American spends one-third of their income on housing. This is why the AHA recommends spending no more than 10% of income on housing by default.

However, this number may not be appropriate for everyone. People with extended family nearby may prefer to spend less on housing so they can save and invest more elsewhere. Others may have high expenses in other areas that require spending.

That is why it is important to consider neighborhood characteristics when determining a suitable ratio for housing costs.

## Check out the housing structure

As mentioned before, the average cost of living in the United States is \$44,895 per year, which is \$4,395 per month. Based on U.S. Department of Housing and Urban Development (HUD) guidelines, this amount of money is considered minimum net income spendable to meet living expenses.

According to Investopedia, the rule of thumb for budgeting your monthly expenses is to set aside no more than one-third of your monthly income for expenses. This includes expenses like rent or a mortgage, bills like phone or Internet and expenses like groceries.

Unfortunately, this rule of thumb does not take into consideration the cost of living in different cities. A one-third savings budget in New York City will go much farther than it would in Wichita, Kansas.

To make this more accurate, we can shift the scale up or down depending on the city you live in.

## Check out the landlord

As mentioned before, landlords are the people who rent you the housing you live in. Landlords can be private individuals, companies, or even the government.

The term landlord can also be used to describe the company or person that owns the building your apartment is in. This is because apartments are usually in buildings owned by other companies or individuals.

Because landlords tend to be very picky about who they let rent their apartments, it can be hard to find one that is within your price range. If you find a decent apartment within your budget, it is probably not going to last long.

There are several things you can do to try and guarantee that you get an apartment, but they may cost money. One thing that does not cost money is organization! Make sure you have all of your documents ready and organized so that she can interview you quickly.

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