How Much Should You Spend On Rent?

We get it. You’re super confused about much to spend on your room rent. And you should be. Especially if you have come across a thousand suggestions already (500 of which are about the 30% rule, right?). Because most of these suggestions must have gone above your head. But don’t worry. You can count on us. We have already done our research and compiled a few pointers on how to decide your budget for a rental apartment or a PG on rent.

And hey, you can trust that research. Because when it comes to migrating to a new city, we’ve kinda written the rulebook on it. Thanks to our experience in building the largest managed-accommodation ecosystem in the country. The ecosystem that’s got 450+ Stanza Living residences and managed apartments in 24+ cities. And you can’t really do that without crunching some numbers, can you? Yep. So you can skip your doubts and head straight down to know how to go about making your rental budgets. Spoiler alert: The ‘30% rule may not always work, sorry.

How Do I Calculate My Income-to-rent Ratio?

First things first, you’ve got to know how to calculate your income-to-rent ratio. This will not only help you understand what percentage of your monthly salary or allowance you’re spending on rent. But it’ll also help you fit the other expenses (including shopping and leisure activities) within your total income.

Now, if you ask us, that’s pretty darn easy. You just have to divide your monthly rent by your total monthly income. After that, multiply that number into 100 to get the percentage. So if you earn Rs. 40,000 per month, and you have to pay Rs. 10,000 as rent, then your income-to-rent percentage will be 25 percent. Yep, it does feel like going back to that dreaded maths class back in school but at least you don’t have to pick up a R.D Sharma for it. Phew.

Rule of Thumb: 30% Rule

Most people you meet will tell you to follow the 30% rule for your rental budget. Basically, the rule says you shouldn’t spend more than 30 percent of your income just on apartment or hostel rent. Sure, it’s called the rule of thumb. But here’s the problem. Not everyone’s monthly income is the same. Plus, it does not consider inflation, rent rises, or variable incomes (say, for freelancers or small business owners). In short, the 30% rule is a good reference point to start calculating your rental budget. But you do have to figure out how well it fits your income after.

50-30-20 Rule

Here’s the better way to go about this, the 50-30-20 rule. Some might say it’s a bit more complex but it does provide you with more accurate estimates about your monthly spending. To break it down for you, the rule says:

• Spend 50% of income on necessities (needs)
• Spend 30% of income on non-essentials (wants)
• Spend 20% on savings and debt repayments

Now, you might have noticed it doesn’t tell you how much to spend on your rent. But actually, it does. And we’ll tell you how. Let’s say, you take home Rs. 60,000 a month. Then you don’t spend more than Rs. 30,000 i.e 50% of your income for your room on rent, electricity bill, cleaning supplies, and home essentials. So you get to spend 18,000 i.e 30% of your income on your ‘wants’. Be it that extra pair of sneakers, a new set of headphones, or whatever, really. And after that’s covered, the remaining Rs. 12,000 can go towards your savings or repay that EMI you took to pay for the sneakers, new set of headphones, or whatever, really.

In short, it’s a sure-shot way to hit that sweet spot between maintaining your preferred lifestyle and not going completely broke towards month-end. Now, we get that this rule will need you to be on your toes. But at least you’ll not be sweating when you look at your account balance.

One last thing tho. Whatever rule you decide to follow, it all comes down to building a little discipline. So if you think you’ll continue spending like Leo from ‘The Wolf of Wall Street, then you can’t, bro. Instead, try to be more like Monisha from ‘Sarabhai vs Sarabhai’.

FAQs on Calculating Your Rental Budget