What Percentage of Your Income Should Be Spent On Rent?

At first, the idea of moving out of the house and starting life as an adult is super exciting — you get to create all the rules and break them if you wish. Over time, it begins to dawn on you that with great freedom (adulthood) comes great responsibility. All of a sudden, a truckload of responsibilities is specially delivered to your doorstep and it almost does not seem to diminish as the years go by.

Part of this responsibility is knowing how to budget and identify how much is an ideal amount to pay for rent. So, what percentage of your income should be spent on rent?

Housing costs vary by location and one’s income plays a huge factor in deciding what area to consider and what type of house to go for. Creating a budget will help you find an amount that is manageable under your current income and leave you with enough to spend on other areas of your life.

The first step in deciding what percentage of your income should be spent on rent is being honest with yourself about how much you can afford. This can be done by finding a fixed income-to-rent ratio — in other words, the percentage of your income that is budgeted towards rent.

The general rule of thumb says 30 percent of your total household income should go towards rent. People who spend more than 30 percent on living expenses are considered to be “cost-burdened” and those who spend 50 percent or more are categorized as “severely cost-burdened.”

The 30 percent income-to-rent ratio doesn’t always work for those who earn close to the median income level as those who earn significantly less may need to spend a larger percentage. On the other hand, there’s a point where your income level can be so high that spending 30 percent on rent will not be rational; thus a lesser percentage would have to be considered.

When calculating your total household income, you need to factor the income of your roommate, spouse or partner. This will help you find the rent range that’s appropriate for your income level.

NB: A person working in Nigeria typically earns around the median salary of 339,000 NGN per month which means that half (50%) of the population are earning less than 339,000 NGN while the other half are earning more than 339,000 NGN. The median represents the middle salary value. Generally speaking, you would want to be on the right side of the graph with the group earning more than the median salary.

Salaries range from 85,700 NGN (lowest average) to 1,510,000 NGN (highest average, actual maximum salary is higher). This is the average monthly salary including housing, transport, and other benefits. Source:http://www.salaryexplorer.com/