Don't Break the Bank on Rent. Here's What You Can Afford.

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When it’s time to find a new place to call home, the first thing you’re going to need to do is make your budget.

If you're an OG reader, you'll remember that I have an easy cheat-sheet when it comes to making your spending plan. It’s just 3 Es. Here’s how I break it down.

This is what you should spend, as a percentage of what you’re making:

• 70% should be on Essentials… so that’s the stuff you probably have to pay every month like rent or mortgage, utilities, food, transportation, bills, insurances, loan payments. The basics.

• 15% should be on Endgame… so that’s things for your future like taking that great trip, or having a sweet retirement, or buying a home, or investment accounts, or supporting a child or parent.

• 15% should be on Extras… the fun stuff, the eating out, or ordering in, getting the pricier shoe because it’s pretty and you want it.

Let's double click on housing.

Within that spending plan, the biggest chunk of your essentials budget is going to go to housing. I recommend allowing for your housing budget to be 35% of what you’re making. That’s a big percentage! That’s half of your Essentials allotment, and over a third of your entire spending plan.

But housing is a big deal. It’s home base. It’s where you can strike out or knock it outta the park. And I’ll tell you from all of the time I’ve spent helping people untangle their financial messes that housing is one of the top three things people go to financial planners to figure out.

Here’s the way to find your magic number: I’m going to first give you the general formula which may sound like a lot of mumbo jumbo initially, but then I’ll use the formula to get your golden number.

The general formula is that you take your annual salary and multiple it by 35%, or .35. Then, divide that number by 12, and you get your target monthly rent budget.

So for example, if your annual salary is $80,000, we would do the following math:

$80,000 x 0.35 = $28,000 (annual housing salary)

$28,000 / 12 = $2,333.33 (monthly housing budget)

Your turn!

For anyone out there who just did the math and is now thinking Oh lord! I’m spending more than 35% on housing! Don’t fret. You’re okay. I’m not going to tell you that you need to break your lease and blow the popsicle stand. But when your lease is up, I would recommend looking around and seeing if you can find a place within that 35% sweet spot.

If you find something that is more than 35%, I won’t be mad if you do some math to try to figure out if it will work. If a building above your budget is helping you cut costs in other areas, well then we can talk. For example, if you’re looking at a building that has a gym included, so you’d get to cancel your gym membership and save some money, maybe that works with your spending plan.

But, this brings me to an important point: if you’re spending more than 35% on housing, in order to make your spending plan work, you need to spend less in another area of your spending plan. Because that’s how balancing a budget works, right? If you’re spending more in one area, you need to spend less somewhere else. Otherwise, you’re just spending more than you’re making and that’s bad news bears.

And what I’ve found from doing this for a long time, is that when people are overspending in the “Essentials” category, they’re not compensating by making some cuts to the “Extras” category. No, no, people skimp in the “Endgame” category. Which means contributing less to retirement, or not saving up for that new roof for your house, or squirreling money away to start a family.

When you contribute less than 15% to your Endgame, all you’re doing is pushing back the start date on your dreams. And is that worth splurging on housing? Maybe you feel like it is… but I’m guessing, probably not.

If you find a place that is more than 35% of your spending plan and you loooove it, don’t forget, you can always try to negotiate it down to what works for your spending plan. Worst case scenario is that they say no, and best case scenario is that your perfect home is perfect for your spending plan. So, why not?

xo,

Do you want to get rid of debt, lock in that raise, plan for your best retired life, find unclaimed money and generally cruise along the road to financial freedom? Here are more ways to get it together and get it all:

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