In Response to this thread

https://www.nairaland.com/7439684/annual-rent-shouldnt-exceed-two

There are two ways to determine
1) Below 30% of your monthly income
2) 50/30/20 Rule

Read and lemme know what you think


In this article, we’ll go over how much of your income you should be spending on rent and why. Keep reading for all of the details or navigate to the sections that interest you most by clicking on any of the links below:

What Does Rent-to-Income Ratio Mean?
What’s the Ideal Rent-to-Income Ratio for a Tenant?
How Do You Calculate Rent-to-Income Ratio?
How Much Should I Spend on Rent?
Conclusion
What Does Rent-to-Income Ratio Mean?
The first step in deciding how much you should spend on rent is calculating how much rent you can afford. This is done by finding your fixed income-to-rent ratio. Simply put, this is the percentage of your income that is budgeted for paying rent.



If you have a high rent-to-income ratio, this means that a significant amount of your total monthly income is going straight to rent. If you have a low rent-to-income ratio, on the other hand, this means that only a small chunk of your total monthly income is being used to pay rent. Generally, the lower your rent-to-income ratio is, the better, as this indicates a greater degree of financial freedom and flexibility.

What’s the Ideal Rent-to-Income Ratio for a Tenant?
30% is widely considered to be the standard rent-to-income ratio. If you’re spending 30% or less of your monthly income on rent, then you’re most likely in a healthy financial situation. When you spend more than 30% of your income on rent, you may find yourself limited when it comes to spending on other expenses and putting away money into your savings. As you become too overburdened by housing expenses, you may become house poor.
How Do You Calculate Rent-to-Income Ratio?
Figuring out your rent-to-income ratio is a fairly simple process. You’ll just need to plug the appropriate values into the following equation:

[Monthly Rent] / [Gross Monthly Income] x 100 = Rent-to-Income Ratio %



To further illustrate how it works, let’s take a look at an example of how to calculate rent-to-income ratio. For this example, we’ll say you have a gross monthly income of $4,000 and are considering moving into an apartment with a monthly rent of $1,500.

[1,500] / [4,000] = 0.375 x 100 = 37.5%

So, in this scenario, your rent-to-income ratio would equal 37.5%, which is a bit high. With this in mind, you may want to consider renting a less expensive apartment or start thinking about ways to lower your other expenses.

50/30/20 Rule
After you’ve set a fixed income-to-rent ratio, consider the 50/30/20 rule to round out your budget. According to this popular budgeting rule, 50 percent of your income goes to essentials, 30 percent goes to non-essential, personal expenses, and the remaining 20 percent goes to savings and investments. In this case, rent falls under “essentials.” Also included in this category are any expenses that are absolutely necessary, such as utilities, food, and transportation.



Let’s consider a hypothetical situation in which you make $4,000 per month. Under the 50/30/20 rule, you would have $2,000 (50 percent) per month to spend on essential living expenses and groceries, $1,200 (30 percent) to spend on non-essential living expenses — such as going out to eat or entertainment — and $800 per month to put towards your savings account, retirement accounts, and other investments.