Where does the 30% rule come from?
It is a housing affordability line used by governments, not a law of personal finance. In the US, the Department of Housing and Urban Development (HUD) counts a household as cost-burdened when housing costs take more than 30% of its income, and severely cost-burdened above 50%. In Canada, CMHC, the national housing agency, uses the same line: housing is considered affordable when shelter costs are under 30% of before-tax household income.
Two details matter. Both measure gross income, before tax. And both count housing costs, which for renters means rent plus utilities, not rent alone. Many people apply the rule to rent only, which quietly lets housing take a bigger share than the rule intends.
How do I calculate 30% of my income?
maximum rent = annual gross income / 12 x 0.30
| Gross income per year | Per month | 30% for rent |
|---|---|---|
| $36,000 | $3,000 | $900 |
| $48,000 | $4,000 | $1,200 |
| $60,000 | $5,000 | $1,500 |
| $75,000 | $6,250 | $1,875 |
| $100,000 | $8,333 | $2,500 |
Paid by the hour? Convert to a year first: hourly rate x hours a week x 52. At $22 an hour for 40 hours, that is 22 x 40 x 52 = $45,760 a year, $3,813 a month, and 30% of it is about $1,144.
If two people will share the rent, use the combined income for the household test, then decide separately how to split the rent between you.
What income do landlords ask for?
Landlords use their own versions of the same idea, and you usually have to pass theirs to get the lease:
- The 40x rule (common in the US): yearly gross income of at least 40 times the monthly rent. For $1,500 rent you need
1,500 x 40 = $60,000. It is the 30% rule in another form. - Three times the rent (US and Canada): monthly gross income of at least three times the rent, which allows rent up to about 33% of gross.
- 30 times the rent (common with UK letting agents): yearly income of at least 30 times the monthly rent. For £1,200 a month that is
1,200 x 30 = £36,000, which lets rent reach 40% of gross pay. Passing this test does not mean the rent is comfortable.
If you do not meet a landlord's test, the usual routes are a guarantor or co-signer, paying more up front where that is allowed, or a cheaper place.
Why can 30% of gross pay still be too much?
Because rent is paid from take-home pay, and take-home is much smaller than gross. Here is an example on $60,000 a year with $1,500 rent. The take-home figure is illustrative; yours depends on where you live and what comes out of your paycheck.
| Item | Per month | Share of take-home |
|---|---|---|
| Take-home pay | $3,900 | 100% |
| Rent | $1,500 | 38.5% |
| Utilities | $150 | 3.8% |
| Student loan | $300 | 7.7% |
| Car payment | $350 | 9.0% |
| Left for everything else | $1,600 | 41.0% |
On paper the rent passes the 30% rule. In practice, $1,600 must cover groceries, fuel, insurance, phone, savings and anything fun. It can work, but it is tight. The same rent with no car payment and no student loan would be comfortable. The rule cannot see that difference; your budget can.
How do I work out my own maximum rent from my budget?
Work backwards from take-home pay instead of forwards from gross:
maximum rent = take-home - savings - debt payments - everything else - utilities
Using the same example take-home of $3,900:
- Savings, 10% of take-home:
$390 - Debt payments:
$300 - Everything else, from your real spending: groceries $450, transport $300, phone and internet $120, insurance $80, personal and fun $400, so
$1,350 - Utilities:
$150 - Maximum rent:
3,900 - 390 - 300 - 1,350 - 150 = $1,710
So for this person, $1,500 rent leaves $210 a month of slack, and anything above $1,710 means cutting savings or everyday spending. Use your real spending for the "everything else" line; the step-by-step budget guide shows how to find it.
When is it fine to spend more, or wise to spend less?
Spending more than 30% can make sense if you have no car because the place is walkable, no debt, a stable income, and you still save every month. In expensive cities, 35 to 40% of gross is common for people early in their careers.
Aim lower than 30% if you carry credit card or student debt, have children, have an irregular or commission-based income, have no emergency fund yet, or want to save for a home deposit.
Either way, count the costs that come with moving: a security deposit (in England, capped at five weeks' rent for most tenancies with annual rent under £50,000), the first month's rent, renters or contents insurance, moving costs, and utility setup fees.
How should couples or roommates split the rent?
Couples can split by income, so each gives up the same share of what they earn: your share = rent x your take-home / both take-homes combined. Roommates more often split by room size. The splitting bills guide has worked examples of both, and the fair share calculator runs the by-income split with your own numbers.
Can Tally help me see whether the rent fits?
Tally's 50/30/20 budget template, on the Budgets tab, puts 28% of the monthly income you enter toward housing, as part of the 50% for needs, and you can change any line. Templates and budgets are free.
Add rent as a recurring bill and it shows on the bill calendar, which is free. Each morning Tally shows what is safe to spend today, with the bills due in the next seven days already set aside.
This guide explains common affordability rules. It is not financial advice.