What Really Makes Me Decide Where to Rent Isn’t How Much Rent I’ll Pay
Deciding where to live is not a purely financial decision.
The lease on my current apartment expires in 7 weeks, so the management of the building where I live recently sent me a letter asking whether I planned to renew it for another 12 months or not.
I had a decision to make.
I looked at the numbers.
The Bureau of Labor Statistics did a Consumer Expenditure Report.
The average family spends 33% of its income on housing. This makes housing the largest expense for most families, which also makes it the most important expense to keep under control.
This begs the question.
How much should you spend on housing?
The answer to this question depends on two things:
Where you live
How much you would like to save and invest
Landlords Don’t Set Rent Prices, the Market Does
Housing prices are largely determined by where you live. The market sets rental prices, not landlords.
From a purely financial perspective, the way to minimize your housing expenses is to live in a place where you can earn a high income in relation to housing prices in your current area.
Deciding where to live is not a 100% financial decision.
While it’s wise to live in an area that offers a high yield in relation to average rental prices, there are other factors to think about.
Specifically. Where your family and friends live. The environment. The culture of a particular city.
I can’t even count how many videos I’ve seen on the internet over the years of people who moved to a new country and were shocked at how much they missed regular interactions with their parents, siblings, neighbors, and closest friends.
That’s not to say that you can’t make new friends or join new social groups in a new country or city.
But…
If it’s possible to live in a location you love and where all your family and loved ones are, it makes sense.
The other factor to consider is how well you fit into a particular culture.
Although you can live more cheaply in a city that doesn’t offer any amenities like spending time outdoors walking, running, and riding without fear, your overall happiness will probably be affected.
Even if you have to spend a little more to live in a place that offers these outdoor activities, it’s probably worth the price if it has a positive impact on your overall happiness.
No beating around the bush.
Your goal should be to keep your living expenses relatively low and, at the same time, live in a city that suits you.
Where your family and friends are close by.
This is a formula for saving money without sacrificing your lifestyle. Your quality of life.
The percentage of your income that you would like to save and invest matters more than you think.
A popular rule of thumb in the personal finance community is that you should spend 30% of your pre-tax income on housing.
If you earn $5,000 a month (before tax), you should spend $1,500 a month on rent.
Deciding how much to spend on housing is an emotional and financial decision. Think about it the next time you rent a space.
From a purely financial perspective, spending less on housing means you have more money left over to save and invest in the stock market.
Plus, no matter where you decide to live, you’ll quickly get used to it.
Last year, I moved into an apartment that is 300 square feet larger than my old apartment, and in a matter of weeks, it felt like the new normal to me.
As humans, we adapt to our surroundings fairly quickly.
This means that paying more each month for more space is unlikely to make a material difference to your overall happiness.
You should strive to live in an area that suits you.
Whether you like going to parks, forests, museums, cafés, libraries, bars, or concerts, you should try to live in an area that offers these amenities, even if housing prices are a little higher than elsewhere.
Keep your overall satisfaction in mind when deciding where to live and how many dollars to spend.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.