The rent you can afford on a salary of \$50,000—or any salary, for that matter—is not the same as the amount for which you qualify. Qualification is often based on a rule of thumb, such as the “40 times rent” rule, which says that to be able to pay a certain rent, your annual salary needs to be 40 times that amount.

In this case 40 times \$1,250 is \$50,000. Therefore, if you make \$50,000, you qualify for \$1,250 per month in rent.

### Problems With the ‘40 Times Rent’ Rule

One drawback with this formula is that the calculation uses pretax or gross income. Although you make \$50,000 a year, the amount you have to spend—your take-home pay—is less.

Another issue with the “40 times rent” rule is that it is a general rule and doesn’t take into consideration your particular financial situation. It doesn’t calculate your expenses. Instead, it simply assumes that if you spend one-fortieth of your salary on rent, what’s left will be enough to pay all your other bills and obligations.

### A Better Rule of Thumb

A slightly more realistic guideline suggests spending 30% of your take-home pay on rent. This rule allows for taxes, retirement, and other deductions before arriving at a rent figure. On your \$50,000 salary, if your monthly take-home pay is \$3,500, for example, your monthly rent should not exceed \$1,050.

There’s still the issue of your specific expenses. For that you need a budget, especially considering that \$50,000 may not go too far if the cost of living is high where you hope to find an apartment.

### The Budget-Based Approach

The best way to determine how much rent you can afford is to add up your actual monthly expenses and subtract them from your monthly take-home pay. This budget-based approach takes more time, but it is more accurate and helps you avoid unpleasant surprises, such as running out of money and finding that you can’t pay one or more bills.

#### Utilities

Start with utilities, services such as water, sewer, trash, electricity, oil, and gas. Water, sewer, and trash are often included in rent but not always. Other utility costs include cable, internet, telephone, and even security and maintenance in some apartment complexes. The cost of electricity and oil and/or gas can vary depending on the age and condition of the apartment. A well-insulated apartment, for example, will cost less to heat. The best way to determine the likely cost of utilities in a new apartment is to ask the landlord or query several current residents.

#### Food and Incidentals

This category includes groceries, cleaning supplies, paper towels, and other items that you use and replace on a regular basis. If you already have a grocery budget, use that as your basis.

If you are moving out on your own for the first time, establishing a grocery and supplies budget isn’t difficult or time consuming. An hour a week should be plenty of time to plan meals, and the savings can add up.

#### Transportation

Your monthly car payment, gasoline, oil, and maintenance will make up most of your transportation budget. Include parking and tolls if they are a regular expense for you. If you rely on public transportation, use those costs instead. If you own and use a car and also use public transportation, include both.

#### Loans and Credit Cards

You must account for loan payments, such as student loans and revolving (credit card) debt, as part of your budget. Keep in mind that the more you can pay, especially on revolving credit, the faster the balance will come down. Don’t just pay the minimum due unless you have no other choice.

#### Renters Insurance

It is not a luxury. Renters insurance protects your personal belongings from loss or theft and provides liability protection in the event you are sued because someone is injured on or in the property you rent. These protections are not provided by your landlord.

#### Retirement and Savings

Contributions to a company-sponsored 401(k) or retirement plan will be deducted before you are paid and do not have to be counted. Any savings that come out of your take-home pay, however, do.

#### Discretionary Spending

Clothing, dining out, gym membership, and hobbies are just a few things that fall under this miscellaneous or discretionary-spending category. It’s the most flexible part of your budget and can be scaled down or even eliminated as needed.