Why the “30% Rule” Just Doesn’t Cut It

Today, more families are putting a larger share of their income toward rent. In the Housing and Urban Development Act of 1969, Congress defined housing affordability as monthly costs of no more than 25 percent of household income. During the 1981 budget crisis, however, Congress increased the amount to 30 percent or less of household income to reduce the amount the federal government spent on housing subsidies (Urahn & Plunkett, 2018). These percentages are before other bills.

Nearly 43 million U.S. families/cohabitants rented their dwellings in 2016, including about 9 million households that were formed over the preceding decade, according to the Harvard Joint Center for Housing Studies (2016). Demand for rental properties has increased across age and socio-economic groups since 2008. Recent studies show that a significant portion of the increases is the result of lower numbers of people owning homes since the Great Recession (Harvard Joint Center for Housing Studies, 2016).

In the aftermath of the 2007-09 downturn, households that rent have been slower to transition to homeownership than they were before the recession and housing crisis. Many families struggle to save enough for a down payment or lack a sufficiently strong credit profile to meet the stringent standards that were put in place in the wake of the crisis. But some renters—even with down payment assistance programs— simply cannot afford the monthly payments for homes that in many areas are commanding prices near those of the 2007 market peak (Urahn & Plunkett, 2018).

Common Financial Rule: The 30% Rule

Ever heard of the 30% rule? It’s the guideline that you should allocate a maximum of 30% of your income for housing costs, and it’s practically personal finance gospel (New, 2015). Why 30 percent? It’s a standard that the government has been using since 1981. Those who spend more than 30 percent of their income on housing have historically been said to be “cost-burdened.” Those who spend 50 percent or more are considered “severely cost-burdened.” (Elkins, 2016).

Affordability calculator often uses the 30% rule as a default when assuming how much house you can afford. Mortgage lenders have adopted it as a qualification ratio when approving you for a loan. While private landlords often require tenants’ annual salaries to be at least three times the monthly rent (New, 2015).

But who actually is following this rule? And does it make good financial sense to do so?

A closer look at rent-burdened Americans

In 2015, at least 38 percent of renter households were rent burdened, compared with 32 percent in 2001, an increase of 19 percent over that period. Further, the number of severely-burdened families grew by 42 percent—to 17 percent of all renters—during the same period


For families in the bottom 20 percent of household income, for whom rent burdens are most pronounced, the racial disparities are even more substantial. The 2015 median pay for all bottom-quintile households was $11,701(Urahn & Plunkett, 2018).


Although Americans of all ages rent, older households tend to be more rent-burdened than younger families. In 2001, 43 percent of households headed by someone 65 or older were rent burdened, compared with 33 percent for 20- to 34-year-olds, 34 percent for 35- to 49-year-olds, and 21 percent for 50- to 64-year-olds. Over time, the proportion of rent-burdened households rose for all age groups, but older households remained the most affected. By 2015 the percentage of households that were rent burdened increased to 39 percent among 20- to 34-year-olds, 31 percent for 35- to 49-year-olds, 40 percent for 50- to 64-year-olds, and about 50 percent of those 65 and older. Further, more than a fifth (23 percent) of households 65 and older were severely rent-burdened in 2015 (Urahn & Plunkett, 2018).

An increasing number of American families are struggling to pay the rent, and that burden is affecting other parts of their balance sheets. In 2015, 7 million households spent more than half of their income on rent. Cost-burdened renter households have little to no financial slack in their budgets, which puts financial security out of reach for many. Even at moderate levels, being rent-burdened erects barriers to saving and wealth building. Renter households nationwide had little savings growth from 2001 to 2015 and now have a lower probability of transitioning to homeownership than they did 15 years ago. But by far, the most significant declines in ownership attainment have been among those who pay 50 percent or more of their household income for rent (Urahn & Plunkett, 2018).

Should the ’30 Percent Rule’ Be a Rule?

So, should the 30% rule even be a rule at all? The short answer: No. Here are four reasons why.

1. The 30% Rule Is Outdated

The 30% rule has roots in 1981 public housing regulations. Rather than looking at what consumers should be spending on housing, however, the government selected the percentages because that’s what consumers were spending (Elkins, 2016).

“This is what one did on average in the past, and as such [the benchmarks] become absorbed into public policy,” says expert David Bieri, an associate professor of Urban Affairs at Virginia Tech.

(New, 2015)

Bieri sees two problems with making 30% the standard personal finance rule for renters. First, blanked averages do not take into account how vastly different households can be. Second, the balance sheet and financial obligations of today’s consumers are vastly different than those of the 1960s on whom this rule is based. Americans back then, for example, didn’t contribute to 401(k) plans or have high student debt (New, 2015).

2. The 30% Rule Ignores Your Full Financial Picture

Let’s do some back-of-the-napkin calculations. Say you’re making $30,000 per year and have no household debt. According to the 30% rule, you’d be able to spend $750 per month on rent, which would leave roughly $1,300 a month for savings and expenses (or $325/week, or $46/day), after taxes (New, 2015).

Quick calculations: 

$30,000 / 12 months = $2,500 x .3 (30% rule) = $750 per month on rent and $1,300 a month left over for other payments and savings.

Sounds great — until you start subtracting student loan payments (income-based repayment plans typically cap them at 8-10%) and retirement savings (ideally 10-15%). You could deduct another 15-20% from those ratios, without accounting for food, entertainment, transportation, childcare, additional debt, or other savings (New, 2015).

3. The 30% Rule Doesn’t Make Sense for High Earners Either

And if you’re making $300,000 per year? The 30% rule would prescribe spending $7,500 a month on rent.

Quick calculations: 

$300,000 / 12 months = $25,000 x .3 (30% rule) = $7,500 per month on rent and $13,000 a month left over for other payments and savings.

Carrie Friedberg, a San-Francisco based certified money coach, says even people with high finical stability may have debt, child support, alimony, elder care or other substantial expenses — like saving for retirement. And in the long run, paying 30% on rent may be an irresponsible practice.

“High earning individuals with a passion for their job and a commitment to their location might consider making a better investment in [buying] a house, condo or an apartment,” says Friedberg.

(New, 2015)

4. The 30% Rule Doesn’t Take Your Personal Situation Into Account

Last but not least, as Bieri pointed out, all renters’ needs are not alike. Young professionals with an active social life might not need or desire more than a conveniently located small apartment they can share with roommates, for example. Contrast their budget to that of a young family (who might have the same income as the professional roommates) looking for space for children and willing to pay a premium to be near good schools (New, 2015).

Housing Vouchers

Families renting with a voucher is also on the rise. Federal rental assistance helps struggling seniors, people with disabilities, veterans, and working families keep a roof over their heads, often by helping them afford rental units they find in the private market. Ten million people in over 5 million low-income households receive federal rental assistance. 10.4 million people in 5.2 million American households use federal rental assistance to afford modest housing. 68% are seniors, children, or people with disabilities. 4 in 10 low-income people in the United States are homeless or pay over half their income for rent. Most don’t receive federal rental assistance due to limited funding (CBPP, 2019).

Rental assistance supports working families: 60% of non-disabled, working-age American households receiving Department of Housing and Urban Development rental assistance include at least one worker (CBPP, 2019).

Housing Vouchers in Gillette, WY

9,800 people in 6,000 Wyoming households use federal rental assistance to afford modest housing. 74% are seniors, children or people with disabilities. 3 in 10 low-income people in Wyoming are homeless or pay over half their income for rent (CBPP, 2019).

Rental Costs Average in Gillette, WY

Rental costs have risen dramatically in Wyoming. The median rent (including utilities) for an apartment in Wyoming was $830/month in 2017, a 29 percent increase since 2001. But wages for many jobs have not caught up. As a result, 25,400 people in 12,600 low-income Wyoming households pay more than half their income for rent, often forgoing necessities, like food or medicine, to keep a roof over their heads. The federal government considers housing unaffordable if it costs more than 30 percent of a household’s income (CBPP, 2019).

Despite the importance of rental assistance, more federal dollars go to homeownership subsidies like the mortgage interest deduction, which mainly benefit higher-income households, instead of families that struggle the most to afford housing. Wyoming communities only thrive when everyone — renters and homeowners — have access to decent, affordable housing. 25,400 low-income Wyoming renters pay more than half their income for housing. Most don’t receive rental assistance due to funding limitations (CBPP, 2019). Who are they?

When low-income renters can’t find a decent, affordable apartment, they are more likely to be evicted and risk becoming homeless. 1,580 Wyoming children live in unstable housing. On a single night in 2018, 640 people experienced homelessness in Wyoming. An estimated 1,580 Wyoming school children lived in shelters, on the street, doubled up with other families, or in hotels or motels during the 2016-2017 school year (CBPP, 2019).

Are you shocked by the rates? Feeling discouraged? Searching for a new home can be stressful; finding a good location, hoping for the amenities that you want, and striking a deal on a place before anyone else does. All while worrying if the perfect place is out of your budget. This stress can be aggravated in competitive real estate markets that can cause you to jump on something that may not actually fit your budget. So how do you go about hunting for a new place to rent?

Create a Budget That Accounts For Your Personal Financial Situation

So what’s a better rule of thumb? Instead of blindly following the 30% rule, create a realistic budget specific to your life. “When you have a thorough picture of your financial life, you can run various scenarios to determine how much you can afford to pay,” says Friedberg. “There is no magic, one-size-fits-all answer.”

Creating a budget may sound daunting, but it can be quite straightforward. Here are 3 tips to follow:

Tip 1 – Begin tracking all of your current expenses with an online tool.


There are many applications out there now that can help you keep up with your expenses. A favorite of ours in Dave. It interfaces with your mobile banking and allows you to pick which transactions are recurring. You can set the schedule of how often it bills you. It’ll send you notifications on your account activities and help track what your spending. Plus, so much more.

Other Helpful Budgeting Apps

Tip 2 – Save an Emergency Fund

For earners who can save, Bieri recommends using a different benchmark altogether: the three-month emergency fund. Look at your cash flow and liquidity, he suggests, to calculate whether you have enough of an emergency fund to cover three to six months’ worth of rent and debt obligations if you were to lose your income. The math may be trickier, but you’ll have a much more definite sense of how much rent you can comfortably afford.

Tip 3 – Try The 50/30/20 Budget


If you still like some guidelines like the 30% rule provides, try the 50/30/20 budget. Using this rule, calculate what your after-tax income is. From there, use 50% of your take-home pay for housing, utilities, groceries, transportation and other non-essentials that typically cost the same month to month. Use 30% of your take-home pay on non-essentials, or “wants,” like clothing, dining out, and entertainment. Lastly, use 20% of your monthly income to save and make extra payments on your debt.

Already Have a Place?

If you moved on a place you’re not sure you can afford, there are a few things you can do to curb some of the pressure on your budget. These tips may help you save money on rent and preserve more of your income each month:

Tip 1 – Roommates

Consider getting one or more roommates to share the cost of the lease. (And as a bonus, you can also save money by splitting things like utilities and food costs.) (Elkins, 2016).

Tip 2 – Asking for Reduced Rent

Ask your landlord if they might consider offering a discount on monthly rent if you’re able to provide a larger security deposit or sign a longer lease. Some landlords may agree to shave a few dollars off rent if they can count on you for stable rental income (Elkins, 2016).

Tip 3 – Public Transportation  

Choose a location that’s close to public transportation or is highly walkable, so you spend less on gas to get around. Or, consider getting rid of your car altogether if possible (Elkins, 2016).

Tip 4 – No Extras

If all else fails, cut out the extras. When you can’t lower your rent costs any more than you already have, look at what else you can get rid of. Consider things like cable TV or premium internet services to save on monthly expenses (Elkins, 2016).


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Mac, F. (2016). Americans 55+ assess current and future housing options. Retrieved from: http://www.freddiemac.com/ research/consumer-research/20160628_five_million_boomers_expect_to_rent_next_home_by_2020

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N/A. (2017). Gillette, WY. DataUSA. Retrieved from: https://datausa.io/profile/geo/gillette-wy/#housing

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N/A. (2019). Qualifications ratios. Lending Tree. Retrieved from: https://www.lendingtree.com/glossary/qualification-ratios/

N/A. (2019). United States federal rental assistance fact sheet. Federal rental assistance fact sheets. Center on Budget and Policy Priorities. Retrieved from: https://www.cbpp.org/research/housing/federal-rental-assistance-fact-sheets#US

N/A. (2019). Wyoming federal rental assistance fact sheet. Federal rental assistance fact sheets. Center on Budget and Policy Priorities. Retrieved from: https://www.cbpp.org/research/housing/federal-rental-assistance-fact-sheets#WY

New, C. (2015). How much should I spend on rent? Ignore the ‘30% rule’. Earnest. Retrieved from: https://www.earnest.com/blog/rent-and-the-30-percent-rule/

Rosenberg, E. (2019). The 8 best budgeting apps of 2019. The Balance. Retrieved from: https://www.thebalance.com/best-budgeting-apps-4159414

Urahn, S. K. & Plunkett, T. (2018). American families face a growing rent burden. High housing costs threaten financial security and put homeownership out of reach for many. The PEW Charitable Trusts. Retrieved from: https://www.pewtrusts.org/-/media/assets/2018/04/rent-burden_report_v2.pdf