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How much of my take-home pay should go towards my rent if I live in a big city?

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Living in a bustling, large city certainly has its perks—quality, gourmet coffee at practically any corner, culture, arts, interesting folks from all walks of life, ditching former versions of yourself by simply uprooting to a new neighborhood, for starters. And while the pandemic has curtailed some of these perks for the time being, you still love being part of the heart of a big-city pulse. As far as perks go, high rent isn’t one of them.

So you want to make the jump to a big city but don’t know how much of your take-home pay should go toward rent? Whelp, first let’s see what our government has to say about it. Federal guidelines actually imply that you shouldn’t pay more than 30% of your gross pay. And that includes utilities.

What’s the difference between gross pay and take-home pay? Gross pay is how much you earn before taxes and deductions are factored in. And take-home pay is after taxes have been taken out and the deductions are accounted for. As the name implies, it’s how much you actually get to take home.

Spend more of that and the government considers you to be “rent burdened.” In other words, you pay so much in rent that you risk not being able to afford other essentials, like food and Wi-Fi.

While this 30% is tossed around a lot in money rules, it’s a bit outdated. Fun fact: This 30% has origins from the Brooke Amendment, which was a change made in public housing that states one shall not pay more than 25% of their gross pay. (This was upped to 30% in 1981.) Remember, if that’s how much you should be paying out of your gross pay, your rent will be a larger chunk percentage-wise of your take-home pay.

The painful reality is that folks who live in larger cities are often paying a lot more than that for their housing. Case in point: In New York there’s an informal rule where landlords typically ask that your salary be at least 40 times your monthly rent.

So if your rent is $3,000 a month, your annual salary needs to be $120,000 at minimum.

And this might be a shocker to no one, but nearly half—44% to be exact—of New Yorkers report being “rent burdened.” In other words, they pay more than 30% gross pay toward having a roof over their heads.

Looking at the West Coast, Los Angelenos actually have it worse. About half are considered rent burdened.

So if you’re living in San Francisco, Los Angeles, or the Big Apple, a more realistic percentage might be closer to 50% of your take-home pay. We know, it’s a lot to stomach, and it might make affording your other living expenses hard to swing.

The bottom line: While the 30% rule canserve as a helpful guidepost, it’s not one-size-fits-all. It largely depends on the city, but it shouldn’t be more than 50%. If spending more on your housing is important or essential to you, you can find ways to be resourceful and cut back in other ways.

Still have questions?

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