Looking to help both kids with apartment searching; they will be in different cities (one low cost, one higher cost). Both are seeking roommates. What is an appropriate % to spend on rent? From googling, some say 30% of income! but not clear if gross or net – and others say that’s antiquated.
Neither has student loan debt or any other debt. Our plan was to buy both kids cars. The one in the low cost city will need the car, but parking costs will be nominal and gas will be nominal as commute isn’t that far. The one in the higher cost city has an option for public transportation so unsure if wants the car or the equivalent in cash. Both intend to max out on 401k plans offered by employers. We have some old furniture that they can have but they’ll need to buy “start up” household equipment, as neither had an apartment in college.
Here in NYC many pay lots more than 30% of their income whatever way you slice it. I actually don’t think those rules of thumb make that much sense. Better to work backwards. What do you need for food, healthcare, saving for a rainy day, some fun money - and then what’s left.
I suspect we’ll help our kid with a deposit. He has a fair amount of cooking stuff that he brought to Tufts, and we have tons of kitchen stuff we can give him. No cars, neither kid drives and we couldn’t afford it anyway!
Pay as little as you can be comfortable with. Mine is about 10% of take home pay (after insurance and 401K and taxes). But it’ll heavily depend on the area. In Silicon Valley you’re not gonna get away with 10% I don’t think.
My view is, a $1000 apartment just doesn’t give you $500 more worth of utility than a $500 apartment.
I think safety is most important. I rather be alive so I can earn money and that has always been my motto. That said I remember my first job, I stayed at a really nice condo in Andover, Mass for about 20% of my gross salary with no roommate.
I would think for Silicon Valley, it would be higher like 25-30% with a few roommates.
1-bedroom in a convenient area (but not in a “good” school district) in Silicon Valley costs about $2100 per month.
A friend of mine who moved into Cupertino for its school district about a year ago. 2-bedroom costs $3000+ per month.
Companies like Apple and Google seem to be expanding and leasing buildings aggressively in many areas here. Their buildings are everywhere. (I drive past at least two (maybe 3) buildings belong to either of these two companies everyday, and I do not drive far – like through 8-10 traffic lights and no freeway. If you do not want to spend so much on the rent, you could choose to live far away from the center of SV and be ready to have a long commute (like most newer home owners do.)
So many variables…safety, commute, parking, other expenses, etc. My D is looking for an apartment right now and is looking to spend about 40% of her gross on a safe, centrally located apartment, with parking. She doesn’t have many other expenses and is prepared to live frugally. Other people may have other priorities or options. On my D’s ridiculously low salary (graduate stipend), her only other option is to live with roommates, which she doesn’t want to do right now.
The best I ever saw was some mega wealthy athlete who explained his lavish lifestyle: 50% off the top to save/invest, 25% to mortgage/recurring bills, 25% to blow however he wished. No idea how this turned out. But obviously, the more you have, the more you can spend and still come out on top.
Back to reality. As I recall, back when we parents started out, the easy figuring was about 25% each for rent/utilities, taxes, food/discretionary, then investments/savings. (Roughly the same as 30%, after taxes.) Life was a lot less expensive. I remember my first apt in SF, an amazing place (the sort many of us would love today,) came in at 25% (shared with a friend, my own bedroom.) Cable was $10 and no cells/web. My bus pass was $10.50/month. Life’s not like that anymore. One of mine has a nice enough place at a manageable cost, but the commuter pass is over $225/mo. She has a solid salary, more than I expected her to start at, but no, she’s not making 20 times what I was, then. Not even ten times.
I like mathmom’s idea to work backwards. I suspect you want them to save vigorously, so after roughly figuring utilities, cell, transpo, groceries, etc, suggest a target savings % (part safety net, part to accrue) and see what’s left for rent and discretionary.
If they are budgeting and saving (an important lesson/skill,) then for the one in the expensive city, you could consider supplementing the rent, if needed, for some target period of time- maybe the first year.
D1 spent 50% of net the first year out of school. Four years out of college, she has only increased her rent spend by 20% and her salary has gone up quite a bit.
I was the one who told her to stretch the first year knowing her salary would go up. I think to have a nice, comfortable place to go back to after a hard day at work is important. For a woman, safety is also of concern. D1 didn’t have a lot of disposable income after paying for rent and such, so I did give her $500/mon for entertainment until she got her first bonus.
I like the “backward” approach to check if whatever number you’re thinking is feasible. If the high cost city is high car insurance as well, I would consider saving the car purchase for when the salary is higher.
Safety needs to be a top concern. It’s not worth saving $500 a month if you get robbed, or hurt…or your car gets stolen.
Things to consider…off street parking availability if they have cars…or the extra cost to rent a parking space, accessibility to things the kiddo wants to get to easily, ease of trip to work (either driving or public transport).
I think 40% of net is reasonable. Don’t ask me where I got that number…but it seems reasonable to me.
I helped the kids work it backward but both started at about 40 percent of their income after taxes right out of college but that percent decreases as they receive raises and promotions as long as they don’t “move up” their accommodations.
None of my kids’ college friends in Boston proper kept their cars, unless they were living and working on the outskirts. D2 rents a Zip Car when she needs a quick escape, gets a regular rental for a weekend, uses Uber for local rides, when public transp doesn’t work out. (I definitely wanted them to budget for taxis, when it was the wiser or safer option.
Ya know, even 40% of net, when the salary is 30k, is different than when it’s 60k. All our numbers really depend on the salary.
It’s not a matter of percentage. It’s a matter of what you can afford.
How much will the young person need for all other expenses? How much is left for rent?
One of my kids paid about 50% of net income to live in a safe neighborhood with excellent public transportation in a major city. The other 50% covered all other costs. The “excellent public transportation” part was key, though, because it made it possible to live without a car.
D1 wouldn’t have been able to afford Her first apartment if she didn’t have a roommate. She also liked to have someone there. They lived togethere for 4 years. They are finally going to part their ways this summer. D1 moving in with her boyfriend and the roommate off to business school in Boston.
I agree with the others. First is safety. I am assuming neither will need to worry about school district for kids. So.the smallest apartment they can get in the the neighborhood that is safe and close to work. Both my D’s did not seek roommates at this point. I can understand that if they have very good friends and want to live together. I think it is harder to live with roommates at this age unless your costs are just too high.
An efficiency may seem small but you get very used to it.
D’s first apartment (shared with a roommate) was around 35% or so of take home, but included convenient, safe parking. She then moved to an apartment by herself which I am assuming increased the percentage paid substantially. She is now living with a group of other women at a significantly reduced cost. As oldfort mentioned, it is nice to have someone there.
S will be paying approx 25% of his take home for a sublet in Boston (Allston) It’s a share - 4 guys, 3 bedrooms, utilities included) while he looks for an apartment. Planning on only having one other roommate, so he’ll likely end up paying more than 25%. He will be working in a burb so needs his car - but it’s paid for. He also has no other debt, we are going to be paying his car insurance, keeping him on our cell phone plan and keeping him on our health insurance. Even though he can get very good insurance through his company we figured he can use the amount it would cost him through job to put in his 401K. H still wants to give him $500/month but imo he should not need it at all. I’ve suggested seeing what all his expenses come to first before giving him the extra money but we are still arguing about it.
Yes, percentage is rough guideline for this, yet my adult kids have managed some things that have defied my idea of what would work by that standard. One started in Manhattan with a studio that cost exactly 50% of her net take home pay, first job post grad school (not a high paying field). She was able to pay bills, save money, start a 401k, have gym membership and go out inexpensively with bf, as well as take modest vacations. This kid is not a shopper, will enjoy a picnic in the park before a free concert and is resourceful. She does not have her car in the city; so far it remains with us. Her income has risen in the last two years, and rent has decreased.
Our other kid lives in an only slightly less expensive city, needs a car for work, views a nice weekly meal out with his gf as routine, and starts his day at a coffee shop. Rent for him is closer to 30% of his relatively low income job, and it needs to be. The car is a significant expense and lends an air of predictability to his finances at times. If public transportation is good, and one is not sure how the monthly finances will shake out, holding off on it to see how viable it is to skip ownership may be worthwhile.
Temperament and lifestyles play into what ratio works. Wardrobe required for a particular job can also impact some “start up” costs. Safety is a top priority. NYC kid quickly figured out that studios in the initially preferred budget put her in places she would not be comfortable. She wound up in a busy, upcoming neighborhood and it worked well.