Rent is a sizable fee that many people pay each month. To manage your personal finances, you need to consider the amount of rent to match your income.
Here are some rules for determining how much rent you should pay
30% rule
The rule of paying 30% of rental income began to appear in the United States in the 1930s and became more popular after the Housing Act of 1937.
This act created the public housing program for low-income families and established maximum rent guidelines for them.
Over time, the maximum rent threshold gradually increased from 20% of income to 25% and hit 30% of income in 1981. This amount remains the standard for public housing programs and is commonly used. as a measure to determine how much money should be spent on rent.
Artwork: Unsplash
According to The Balance, interestingly, the 30% rule applies to rent, but there’s a different number used for mortgage payments. Mortgage lenders typically look for borrowers whose combined monthly mortgage and mortgage payments do not exceed 43% of their income.
In a nutshell, the 30% rule recommends that your monthly rent payment be no more than 30% of your gross monthly income.
To calculate how much to spend on rent, simply multiply your total income by 30%. For example, if your total monthly income is 10 million VND, then the maximum amount you have to pay for rent is 3 million VND.
The remaining 7 million (70% of gross monthly income) covers other essential needs, such as utilities and food, discretionary spending, debt repayment and savings.
Is the 30% rule “out of fashion”?
The 30% rule is slowly becoming obsolete for two reasons.
First, it doesn’t take into account inflation, stagnant incomes or rising rents.
Second, this rule is not personalized for each different situation. For example, it doesn’t take into account student debt or credit card debt that you still have to pay. It also doesn’t consider how much you earn, the taxes you pay, your financial goals, or the affordability of the property market where you intend to rent.
The 50/30/20 . Rule
Compared to the 30% rule, the 50/30/20 rule is gradually gaining popularity and being applied by many people to calculate the rent.
Specifically, this rule dictates that you should divide your income into 3 parts:
– 50% of essential expenses: The money to maintain your living such as rent, meals, electricity and water, travel, …
– 20% financial goals: Save money for specific goals such as paying off debt, getting married, buying a house, investing; or accumulate an emergency reserve fund
– 30% of personal consumption: Expenses for shopping, entertainment, socializing needs (wedding money, asking questions, going out to eat with friends)…
It can be seen that the rent will be in 50% of your income for essential needs. This rule doesn’t tell you exactly how much you should spend on rent each month. But it can help you determine guidelines for apportioning necessary expenses based on income.
Whether you use the 30% rule or the 50/30/20 rule for rental budgeting depends on your financial situation. For example, if you don’t have any debt, you can afford to pay 30% of your monthly income in rent. If you live in a housing market where rents are high, paying extra may simply be required.
On the other hand, if you need to consider paying off debt or increasing your savings, use both the 30% rule and the 50/30/20 budgeting rule. From here, you can compare housing spending options to maximize your savings opportunities.
at Blogtuan.info – Source: Soha.vn – Read the original article here
