Knowing how much you can afford to spend on rent might not be easy, especially if you’re moving out for the first time.
Have a quick Google and you’ll no doubt be told to spend no more than one third of your income on rent. But while this might be good advice in some parts of the world, in the UK it probably won’t be possible, especially if you’re looking to rent somewhere with high house prices like London.
Instead you’ll need to work it out yourself.
Step 1: Work out your monthly income
The first think you need to is work out how much you earn, in total, over a month. This might be as simple as looking at your payslip, or it might be more complicated than that. Remember to include all regular income streams, minus tax. If you’re self-employed and pay tax at the end of the financial year, divide your approximate yearly tax bill by 12 to work out a rough monthly deduction.
Step 2: Work out your outgoings
Look at your bank statements for at least the last few months and jot down how much you spend each month. Remember to include:
Insurance e.g. contents insurance
Payments into ISAs or savings accounts
Any debts or repayments (items bought on credit, or credit card bills)
Remember that some things won’t be the same in your new place as they are now – for example, if you’re moving out of your parents’ house your spending on food will probably go up, and if you’re moving to a new area then your travel costs will likely change. Estimate them as best you can – and if in doubt it’s always better to overestimate than underestimate.
With things like eating out and shopping, try to be honest with yourself. We all like to think we can be frugal, always cooking for ourselves and buying clothes second hand. But if you over-restrict on things that bring you joy, your budget won’t be sustainable long-term.
Remember that getting your own place will come with other costs too, like utility bills and council tax. You can either estimate them and include them in your outgoings at this stage, or keep them in mind as an extra thing you’ll need to budget for when you know how much money you have leftover for rent.
Step 3: Minus your outgoings from your income
The next step is to take your total income and take your monthly outgoings from them. The figure you’re left with is, in theory, the amount you could spend on rent. But don’t go scrolling through Rightmove just yet.
Step 4: Think about your financial buffer
The figure you’ve got now is the maximum you could spend, but you don’t want to spend it all. You want a financial buffer in case, for example, you lose your job or your car has an MOT that results in a big bill. There isn’t one rule for working out how much your financial safety net should be – it’s a very personal decision, so give it some thought. It might be best to think about it in terms of how much you want to have set aside per year, instead of per month. Divide it by 12 to see how much you need per month, and take it away from the figure you’ve already worked out.
At this state it’s important to only consider savings that are accessible (e.g. in your own bank account), rather those which are tied up in things like ISAs. The latter can’t necessarily be used as a financial buffer, as there could be limits to how much you can withdraw and when. So when you’re thinking about your emergency funds, only count the savings that you could actually withdraw in an emergency.
Step 5: Research
Now you’ve got your rough figure, it’s time to go onto online property portals like Rightmove and Zoopla to see if the figure is reasonable for the property size you want in the area you’re looking at. If you haven’t already included bills and council tax in your outgoings, remember to consider them here. Some listings will even tell you roughly how much they are, or they might even be included in the rent.
If there are lots of properties in your price range – great! If there aren’t, don’t panic – there are things you can do.
Reduce your expenditure
One of the easiest ways to increase the money you have for rent is reducing your monthly expenditure. Could you buy a bike instead of getting the train to work every day? Are there any subscriptions you could do without? Could you be stricter with yourself when it comes to eating out? Whatever you’re able to cut down on, every little helps.
Up your income
This may be easier said than done, but if you’re totally set on that area and that property type then there might be space for upping your income. Have you got time for a side hustle? Could you apply for a job with a higher salary, or ask your current employer for a pay rise?
Re-think your requirements
This will mean different things for different people, but usually you can get slightly cheaper rent if you’re willing to sacrifice certain things. If you don’t use your car much, do you really need a property with a parking space? Could you manage with a flat instead of a house? Could you get somewhere smaller, and just commit to having a proper declutter before you move? Or could you get rid of the spare room and just put a sofa bed in the living room instead? Think very hard about what you can (and can’t) compromise on.
Consider location too. Could you manage somewhere slightly less central if it meant you could get more for your money? But don’t forget to think about how this might impact your budgeted transport costs.
Get a housemate
This won’t be an ideal solution for everyone, but it is a great way of being able to live in areas and properties that would otherwise be out of your price range. You could ask around your friends to see if any of them are looking to move out – you might prefer this to living with strangers. But if not you can look at websites like SpareRoom for what’s available – you might be able to get a much bigger, and nicer, space than if you rented somewhere on your own.
A few extra things to consider
The actual process of moving house costs, too – remember to think about things like removal costs, and have a go with our moving cost calculator if you’re not sure.
Furnished properties will usually be cheaper, but you’ll need to buy everything you need yourself – remember to include this in your financial plans.
How much you want to spend on rent is largely a personal decision, but following our advice will make the process easier. You want to be able to get the most for your money, but there’s no point in over-restricting and not having the financial freedom to enjoy your new home. As long as you’re realistic and honest with yourself from the start, you can’t go far wrong.