How Much Rent is Too Much Rent?

Nearly half of Americans who rent housing are spending more than 30% of their incomes on rent, the highest level in 13 years, according to a study by Harvard University’s Joint Center for Housing Studies.

[Related: Americans Carrying Record Amounts of Car Debt]

Thirty percent is the magic number many financial advisers say is the maximum we should spend on rent from our after-tax income.

“Even with the strong rebound in multifamily construction, tight rental markets make it difficult for low- and moderate-income renters to find housing they can afford. As a result, the number of cost-burdened renters set another record last year, the study says, citing that more than 21 million households are burdened by how much rent they pay,” say Harvard researchers.

Overspending on housing takes away our ability to fund retirement, education, and takes resources away from our core financial goals.

“One of the most common areas of overspending for Americans is housing. I typically recommend keeping housing expenses (mortgage payment or rent) at under 25% of your monthly income,” says Rick Kahler, CFP, president of Kahler Financial Group and author of Conscious Finance: Uncover Your Hidden Money Beliefs and Transform the Role of Money in Your Life.

“Americans live in more square feet per person than any other country. You probably don’t need as much living space as you believe. One of the hidden benefits of a smaller living space is that we will inherently reduce our spending on trappings, furniture, and appliances to fill the space,” says Kahler.

“In my experience, I have found Americans have a tendency to fill empty living space with things in the same manner they unconsciously will spend money left in a checking account. You will also reduce the costs of maintaining a larger living space like utility and repair costs,” he adds.

Be sure to take your total budget into account when you determine how much you can afford to spend for housing, and also consider the impact on your overall goals.