When it comes to renting, it can sometimes feel like you will never get ahead.
Rents in Canada’s major cities have skyrocketed in recent years, making it harder and harder to save for a down payment to eventually own a home.
If you find yourself wondering how to balance the cost of rent with general cost of living expenses while hitting your savings goals, there is a rule to keep in mind that will help you end up where you want to be.
The main rule of thumb when it comes to rent is that it should be no more than 30% of your gross income.
The 30% Rule Explained
The rule is simple—take 30% of your monthly salary before taxes are deducted (i.e., your gross income), and that should be the maximum amount you spend on rent each month.
For example, if your gross yearly salary is $50,000, divide that number by 12 and you will find your monthly gross salary is $4,166.66 per month.
Then you take that number and multiply it by 0.3 to find the magic 30% number you should be limiting your rent to each month. In this case, it would be $1,249.99.
This means the maximum amount someone on a $50,000 salary should be spending on rent each month is $1,250.
This is a good illustration of how the rule doesn’t apply to certain situations.
Finding an apartment in a city like Toronto for that price will be nearly impossible unless you have multiple roommates, but you could find a nice one-bedroom in a smaller town for that price
The higher your income, the more likely this rule will work out for you.
Like any financial rule, you have to take your particular situation into account in order to see if the rule truly works for your life.
Pros of the 30% Rule
- Easy to achieve in a smaller city or town
- Provides a quick and easy guideline
- Enables other financial goals, such as saving
Cons of the 30% Rule
- This rule doesn’t work well in a large, expensive city
- It doesn’t work well for those in a lower income bracket
- It creates discrimination from landlords, who too often refuse to rent to those who can’t meet this criteria
According to theOntario Human Rights Commission, approximately one-third of Ontarians pay more than 30% of their income to rent each month.
Costs of Renting
While the 30% rule gives you an easy number goal to reach for when searching for a new rental property, it doesn’t tell you everything there is to know about the cost of renting.
The first time you rent an apartment, all the extra expenses can come as a shock.
A rental may include utilities, or it may not.
Expenses like that can add to your total rent cost each month.
There are multiple expenses to keep in mind when calculating your budget:
- Utilities (electricity, water, gas)
- Moving expense
How to Increase Your Rent Affordability
If you’re worried that the 30% marker is out of reach for you, you’re not out of luck.
Many people can’t attain this ratio, and that doesn’t stop them from renting.
There are many ways you can increase your rent affordability.
1. Reduce Your Expenses
This one can be tricky because you can only reduce your expenses so much, but it is possible to forgo some things in order to make your rent the priority.
For example, if you’re used to eating out for many meals, start cooking at home.
You can also cut back on your entertainment budget, cut the streaming subscription you barely use, and price shop for the best deal on internet and phone plans (tip: if you ask to cut your service, they will usually offer you a better deal).
You can find affordable furniture at Ikea or through a community trade group instead of spending multiple thousands on a couch.
Switch to an online bank that offers free banking, like Tangerine, to avoid unnecessary monthly fees.
And make it a priority to search for rentals that include utilities.
2. Increase Your Income
The best way to increase rent affordability is to increase your income.
This is of course, easier said than done.
However, with the recent rise of remote work and gig platforms, anyone and everyone can have a side hustle.
Finding remote part-time work online is an easy way to add some extra income to your monthly budget, allowing you to meet that 30% ratio easier.
You can also consider asking for a raise.
Make a case for why you deserve it, using hard facts that show how you’ve helped the business thrive.
If you’re starting a new job, always negotiate your salary.
The first offer is never the ceiling on what they can offer you.
3. Living with a Roommate(s)
If your situation allows for it, an easy way to cut costs on a rental is to have a roommate.
Living alone always costs significantly more than living with someone else.
A roommate allows you to split utility, insurance and furniture expenses on top of splitting the rent.
Many people who own their apartments look for roommates to help offset their mortgage costs.
In that case, they may charge you less for a smaller room and it will already be furnished.
This works well for a young person new to renting, but if you are a family with children, the idea of a roommate might not be a feasibility for you.
Again, it all depends on the particulars of your lifestyle.
4. Consider Looking in Different Locations
When it comes to rent, location is everything.
The more sought after the location, the pricier the rent will be.
While rent is going up at a rapid pace all across Canada, large cities are much more expensive than towns.
But this effect can be found even within smaller cities.
Landlords will charge more for a unit with the exact same specifications and amenities as another unit they rent, just because of the particular neighborhood it is located in.
And with remote work becoming ubiquitous lately, you have a lot more freedom to choose a rental location that isn’t tethered to an office.
Did You Know?
The average cost of rent in Canada in December 2021 was $1,789, up 3.8% from 2020—according toa report from Rentals.ca.
Frequently Asked Questions
- Is the 30% rule outdated?
It works well for a certain demographic—those with high incomes, those in multi-income families, and those in lower cost of living cities.
It can feel outdated when you consider the current hot real estate market in Canada, and how wages have not kept pace with inflation in a very long time.
- How much is too much to spend on rent?
It depends on your situation and priorities. Some people are hyper focused on saving for the future, while others want to live close to the action today, even if it costs more.