As a student we were taught that your rent should NEVER be more than 30% of your total net income (take home pay or your salary after all the deductions were made).
Living in a metropolitan city with insane rental housing, this may seem difficult to attain. You would want to live near your workplace; most of these offices are situated in uptown centers. But after leaving alone for 6 months, I would like to counter your rent shouldn’t be more than 15% of your total net income.
To be honest my rent takes up 25% of my current net income. But this is why I believe your rent should be 15% of your total net income.
Let’s work with an even amount of 100,000 as your net income.
Spending 30% of it on rent means you live in a house paying 30,000 every month. Now, this is like crumpling paper and throwing it in the trash. You probably go to your house to just chill and sleep. 30,000 caters to none of your housing bills, meals and it isn’t even an investment. In one year you have flushed a whopping 360,000 just for a place to sleep.
With 360,000 you can buy a 40 foot container partition it in 4 and rent it for 5,000 – 15,000 a month (depending with demand and location). That means in one year you will make an extra 240,000 – 720,000. That’s a no-sweat Christmas and definitely no Njaanuary escapades.
Now the level of insanity of most graduates is that their rent takes about 50% of their total net income.
Sit down and ask yourself, if your current rent situation allows for emergencies. How is it assuring you of a good financial future? If you were to lose your job any minute, how long will take you to sustain yourself before finding another source of income?
As you can see, I’m in the camp of keep your fixed costs as low as you possibly can.
