I Used to Spend Around 50% of My Income on Rent. Here’s How I Made It Work – Motley Fool

I Used to Spend Around 50% of My Income on Rent. Here’s How I Made It Work – Motley Fool

It’s possible to get by financially even when rent costs you a fortune.

As someone who writes about personal finance, I often find myself repeating one important mantra: Don’t let your housing costs exceed 30% of your take-home pay. Now to be clear, by “housing costs,” I’m talking about predictable expenses. If you’re a homeowner, that 30% covers your mortgage payments, property taxes, and insurance. If you’re a renter, it covers your rent payments and renters insurance (which doesn’t tend to be nearly as expensive as homeowners insurance).

But there was a time in my life when I most definitely broke the 30% rule. Back when I lived in New York City, I rented a tiny studio where rent ate up about 50% of my income. In spite of that, I was able to manage my bills, avoid debt, and even save money in the process. Here’s how.

It’s all about making choices

The reason I lived in New York City was to be close to my office. I’m not a city person by nature, and I’m certainly not a fan of cramped spaces, which Manhattan is notorious for. But at the time, renting in the city made sense, even though my tiny apartment cost a small fortune.

But while I wound up having to spend about 50% of my earnings on rent, my finances didn’t take a hit. The reason? I kept the rest of my bills low.

These days, I live in the suburbs, and I spend a lot of money on car insurance, gas, and maintenance for my vehicle. When I lived in New York City, I spent virtually no money on transportation because I walked a lot and almost never got in a taxi. (Fun fact: In NYC, you’ll often get to your destination faster on foot than by car.)

Additionally, I spent virtually nothing on electricity because my apartment was tiny. And I got a bare-bones cable plan for entertainment but didn’t pay for a bunch of extra channels or features.

I also did my best to spend minimally on food. New York City is home to thousands of restaurants. At some of them, you’ll have to spend $500 on dinner to walk away feeling full. But some eateries in the city offer great value, and when I did meet friends out for dinner, we chose affordable dining spots. Plus, I did a good job of planning out my meals and cooking on the cheap so that I often had leftovers to bring to work for lunch (whereas my colleagues would spend $15 a day on a sandwich).

All told, the high cost of my rent was offset by a very frugal lifestyle all around. So despite spending about 50% of my earnings on my studio, I was able to add money each month to both my regular savings account and my retirement plan.

Setting priorities

I still stand by the idea of keeping your housing costs to 30% of your income or less. But if that’s not feasible …….

Source: https://www.fool.com/the-ascent/personal-finance/articles/i-used-to-spend-around-50-of-my-income-on-rent-heres-how-i-made-it-work/

Personal finances