How Much Can You Afford to Spend on Your Monthly Rent
When figuring out how much you can afford to spend on your monthly rent for your new apartment, there are three main costs which you must consider:
1. Start-up costs,
2. Periodic rental payments, and
3. On-going living expenses.
You will need to work out how much you can afford to spend on all three of these costs. Failure to do this could see you miscalculate your total expenditure and blow your budget. For example, you may spend money on furniture and the first and last month's rent only to find you cannot afford to buy food.
You need to consider how much you can afford to spend on rent each month. The rule of thumb is that your rent should not exceed one third of your total gross (pre-tax) income. If you want to be conservative, ensure that it doesn’t exceed one-third of your after-tax income. As well, your total rent includes all utilities you have to pay. Utilities typically include hydro, water and heat. You’ll need to make the decision whether you can afford other discretionary “utilities” like telephone, internet and cable.
You’ll also need to consider your living expenses. The obvious ones include food – both groceries and eating out, transportation, entertainment and clothes. Make sure you allow for unexpected expenses, like flu medication or car repairs. Perhaps even allocate another 10% of costs to ensure you have these extra costs covered. You may also want to allocate some funds for your savings in general, or towards a certain item like a vacation. Note that there are some great automatic savings programs through the virtual banks, ING Direct and PC Financial.
Now, determine how much you are likely to spend on start-up costs. These could include:
Do you have access to sufficient savings to pay for all these items? If not, then keep in mind that many of these items could be borrowed or bought second hand (check out Craigslist or Kijiji ) to save money. Family and friends should also be your first stop for contributions.
As you are spending a significant portion of your monthly income on rent, other than a roof over your head, you should also figure out what you need in return for your monthly rent payments. First, decide what you need to have as part of your “rental package”, like size of the apartment, number of bedrooms and any features you can’t live without (i.e. air conditioning?). Next you’ll need to figure out what’s nice to have. The key here is figuring out what you’d be willing to do without to ensure that you get what’s most important to you. Could you forego onsite laundry or a gym to have air conditioning?
In the end, you get what you pay for, so be reasonable – if you can’t afford much, don’t expect to live in a high-end luxury Toronto apartment with all the amenities in return…
1. Start-up costs,
2. Periodic rental payments, and
3. On-going living expenses.
You will need to work out how much you can afford to spend on all three of these costs. Failure to do this could see you miscalculate your total expenditure and blow your budget. For example, you may spend money on furniture and the first and last month's rent only to find you cannot afford to buy food.
You need to consider how much you can afford to spend on rent each month. The rule of thumb is that your rent should not exceed one third of your total gross (pre-tax) income. If you want to be conservative, ensure that it doesn’t exceed one-third of your after-tax income. As well, your total rent includes all utilities you have to pay. Utilities typically include hydro, water and heat. You’ll need to make the decision whether you can afford other discretionary “utilities” like telephone, internet and cable.
You’ll also need to consider your living expenses. The obvious ones include food – both groceries and eating out, transportation, entertainment and clothes. Make sure you allow for unexpected expenses, like flu medication or car repairs. Perhaps even allocate another 10% of costs to ensure you have these extra costs covered. You may also want to allocate some funds for your savings in general, or towards a certain item like a vacation. Note that there are some great automatic savings programs through the virtual banks, ING Direct and PC Financial.
Now, determine how much you are likely to spend on start-up costs. These could include:
- First and last month’s rent (upfront);
- Movers;
- Connection to services, e.g. telephone, cable, hydro;
- Furniture, e.g. bed, couch, table and chairs;
- Kitchen utensils, e.g. cutlery, cooking pans; and
- Linen, e.g. towels, sheets.
Do you have access to sufficient savings to pay for all these items? If not, then keep in mind that many of these items could be borrowed or bought second hand (check out Craigslist or Kijiji ) to save money. Family and friends should also be your first stop for contributions.
As you are spending a significant portion of your monthly income on rent, other than a roof over your head, you should also figure out what you need in return for your monthly rent payments. First, decide what you need to have as part of your “rental package”, like size of the apartment, number of bedrooms and any features you can’t live without (i.e. air conditioning?). Next you’ll need to figure out what’s nice to have. The key here is figuring out what you’d be willing to do without to ensure that you get what’s most important to you. Could you forego onsite laundry or a gym to have air conditioning?
In the end, you get what you pay for, so be reasonable – if you can’t afford much, don’t expect to live in a high-end luxury Toronto apartment with all the amenities in return…