Scoring a lease with an affordable monthly rent payment often feels like finding a needle in a haystack. Over the last two years, renters have had to bear the brunt of rapidly rising rent pricesand some landlords havent hit pause on increases just yet.
Typical asking rents at the national level now stand at $1,996, which is 6.0% higher than one year ago, according to the Zillow Observed Rent Index (ZORI). Its not uncommon for landlords to raise rent prices during lease renewal periods to account for inflation, increased market value, or other external factors. If this happens, you can decide to agree to a higher payment or search for something more affordable.
But what if you really love your home and arent prepared to give it up because of a rent increase? In this case, its time to revisit your budget.
How much of your income should you spend on rent?
A common rule of thumb is that you shouldnt spend more than 30% of your monthly income on housing. Even so, in certain metropolitan areas, you might be forced to shell out way more for rent.
Say you live in New York City, where the median monthly rent is $3,500, according to Zumper. The most recent data from the Census Bureau shows that the median household income stands at $70,663 for the area, meaning you shouldnt spend more than $1,766 on your rent each monthhalf of what it actually costs.
Its important to note that guidelines like the 30% rule are not set in stone. The amount you can afford to spend on rent will ultimately be unique to you, your budget, and your financial goals. Thats why its important to create a budget that will help you better understand how your monthly rent impacts other areas of your finances, like how much money you have available to spend on your wants or how much youre able to save for future goals such as buying a home or retirement.
Expert tips for fitting a rent increase into your budget
If your landlord decides to raise your rent, try not to panic. There are adjustments you can make to your budget to free up some of your monthly cash flow (or make more of it).
Start by figuring out where your dollars are going
If youre not keeping a close eye on your everyday spending, you could be overspending in certain categories and needlessly putting more pressure on your wallet.
The first step is to take a look at your current expenses and figure out your true essentials, says Lucas Seely, a certified financial planner with Brightside, a financial care platform for employers. In other words, ask yourself what you absolutely need to live. Then look for expenses you can cut to free up additional budget for rent, he says. This could include reducing subscriptions to streaming services like Netflix, limiting entertainment expenses such as eating out or buying concert tickets, or considering a swap to public transit to avoid the maintenance, fuel, and insurance costs that come with owning a car.
Once youve nailed down your non-negotiables and identified any excess spending, you can look for ways to reduce your monthly costs. Maybe its shopping around for a lower car insurance rate, or downgrading to a cheaper phone plan. Its not always about cutting out spending categories completelyeven small monthly savings can add up over time and free up more room in your budget.
Look for ways to boost your income
Think of your budget like a balance scale, with one side representing your monthly expenses and the other side representing your income. If you can look for ways to tip the scale so that your income outweighs your expenses, youll be in a great position to adjust spending as needed.
One of the best solutions is to find ways to increase your income, such as taking on additional employment, says Seely. He admits it can sound oversimplified or even privileged to simply say go make more money, but its true that increasing income is one of the best ways to improve your financial situation.
This could be done by taking on a part-time job, joining the gig economy through app-based food delivery or ridesharing, or even leveraging a hobby or passion into a side hustle to add extra income, he says. For those with investment portfolios, repurposing them from growth to income with the aim of generating passive returns can also increase your bottom line. Consider restructuring your portfolio to invest in more income-generating assets such as dividend-paying stocks, bonds, money market funds, and real estate.
Ask your landlord to work with you
If restructuring your budget still doesnt leave enough room for a higher rent payment, it could be worth reaching out to your landlord and explaining your situation. If youre a longtime tenant with a track record of on-time payments, your landlord may be willing to keep your rent at the current amount, at least temporarily.
You might also consider offering to sign a longer lease in exchange for the same rent payment or less frequent rent increases.
The takeaway
A rent increase can certainly throw you for a loop, especially if youre already spending more than youd like. In many cases, fitting a rent increase into your budget will require you to adjust your spending habits or look for creative ways to boost your income.
However, in other cases, it might be time to consider some alternatives.
If none of the above are enough to fit the rent increase into your budget, the best solution is to explore more drastic savings options, such as moving to a less expensive apartment, taking on a roommate, moving in with family or friends, or looking into community agencies that help find affordable housing or rental assistance, says Seely. While this may dent pride somewhat, if it sets you up for greater financial security in the long run and avoids bad debt, its worth it.
