GoKawiilWages in America Are Too Low for the 30% Rule To Work for Renters Anymore
The 30% rent rule has been a personal finance staple for decades. It stipulates spending no more than 30% of your gross income on housing, and you should have enough left over for everything else.
But the problem with this rule is that everyday life is much more expensive than it used to be. Housing, groceries, gas, and other everyday essentials have all steadily increased at a faster pace than the average income.
As for rent, the median asking price in the 50 largest metros registered at $1,686, $248 (17.2%) higher than the pre-pandemic level, according to the latest rent report.
All of this poses the question: Should you blindly follow the 30% rent rule in this economy? Or is it outdated?
Where the 30% rent rule came from
The 30% rent rule can be traced back to federal housing affordability guidelines that used the 30% benchmark as a way to gauge if housing costs were reasonable. Today, landlords and all the online “how much rent can I afford” calculators use it as a quick way to determine affordability.
Although this rule isn’t necessarily wrong, the reality is that modern budgets are much more complicated than they used to be, so you can’t take the 30% rent rule as a hard-and-fast guideline.
“I have seen people technically meet the 30% rule and still feel financially strained,” shares Linda Grizely, a certified financial planner and financial wellness speaker. “The pressure isn’t the rent alone; it’s the combination of rent plus everything else in their financial life."
The biggest flaw: It uses gross income, not take-home pay
... continue reading