How Much of Your Income Should You Spend on Housing?
by Thom Brown
Traveling the world requires some serious budgeting. You’ll be amazed at how quickly you go through your savings when you’re living in hotel rooms and eating out every night. At some point, you’ll need to sit down and have a serious think about how you’re spending your money. Luckily, remote workers have the luxury of being flexible with their spending.
One crucial cost is, of course, accommodation. If you’re wondering how much of your monthly income should you spend on housing, then this guide is for you. I’ve gathered together tips from the most experienced digital nomads and finance experts to help you figure out exactly how much to budget for housing costs while working remotely.
How Much of My Income Should I Spend on Housing?
Wherever you go in the world, rental prices will differ substantially. According to Anyplace contributor, Nataly Echezuria, travelers to SoHo can expect to pay an average of $3,600. Meanwhile, entrepreneur Ignacio Nieto Carvajal spends just $800 a month on a luxury two-bedroom apartment in Sofia.
However, these absolute numbers aren’t particularly useful. What percentage of their income are they spending? I have no idea. But if Nataly earns $11,000 a month and Ignacio makes $1,500, then Nataly would be doing better financially. She’d be putting just a third of her income towards rent compared to Ignacio spending over 50% of his.
So the amount you spend on housing will be unique to you and how much you make. This is why people often discuss rental costs in terms of the proportion of their income spent on them. Even this is a little oversimplified, though.
That’s because the more you earn, the lower the percentage of your income you can put towards housing. If you’re on a very low income, then it’s possible that you won’t be able to find a place for less than 50% of what you earn. At the end of the day, housing is vital. You need good insulation, a comfortable bed, proximity to services, and working appliances. These things all cost money.
As your income increases, you don’t necessarily need to spend larger amounts on housing. If you have a place that is comfortable, spacious, well-located, and has everything you need, why spend more? Any extra money earned could be better put towards travel or savings funds.
It’s a sad truth that wealthier people can afford to spend a lower proportion of their wealth on housing costs. But that’s just more motivation to keep progressing in your career, right? Despite this, financial experts have put a figure on what they believe to be the right amount to spend on accommodation. This is expressed in the 28/36 rule.
What is the 28/36 Rule?
Many lenders apply the 28/36 rule when deciding whether to approve your mortgage applications. Therefore, it makes sense to use this as a rule of thumb to live by. Even if you don’t plan to apply for loans any time soon, sticking within these limits is a sign of healthy finances.
According to Business Insider, “you should only spend 28% or less of your gross monthly income on housing expenses. You should also only spend 36% of your gross monthly income on all your debts.”
That means all of your debts combined, whether that’s a loan for a car, a student loan, or a credit card. Your gross monthly income refers to the amount of money you make before taxes are applied. So if your gross monthly income is $2,000, then make sure your monthly debt repayments don’t total more than $720, which is 36%.
The amount you spend on housing should ideally, therefore, be no more than 28% of your income. For a remote worker making $1,000 a month, that equates to $280; those making $2,000 would be able to pay $560; if you earn $5,000, then you can spend up to $1,400.
The calculation is pretty easy to work out — you can even Google the calculation. Remember, this is the maximum amount you should aim to spend on accommodation. If you can find a place for less, then that’s just extra money to be used elsewhere.
Some people consider this rule to be unfair to low earners. If you’re only making $1,000 a month, then it might not be possible to find an apartment for under $300. That’s why 70% of extremely low-income earners spend more than 50% of their income on housing costs. However, these people are usually tied to a single location. As a remote worker, consider relocating to an area of the world where you can stick within this 28/36 rule.
Should Remote Workers Spend 30% of Their Income on Rent?
There’s no simple answer to how much of your monthly income should go to housing, but the experts seem to have settled on a figure of around 30%. If you can set aside just under a third of your income for housing, then that leaves you with 70% left for everything else. If you’re achieving this, then you’re doing better than many.
However, there’s a special luxury that comes with being a remote worker. Rather than staying in expensive countries like the US, UK, or Australia and struggling to find a place within your budget, why not move abroad?
Think about this: if you’re earning a salary from your country of origin but live in a much cheaper part of the world, then it’s perfectly possible to spend 20% or even 10% of your monthly income on rent. Maybe you’re being paid $5,000 a month from an American company but living in luxury for $500 a month in Chiang Mai.
Katie Diederichs is a big fan of Chiang Mai as a place to base yourself for a couple of months. She says that while in the Thai city, she and her partner live comfortably off $1,500 a month or $750 each – for everything, not just rent. Katie says, “we spoil ourselves with weekly massages, healthy meals out, movie dates, and occasional beers and cocktails.”
Due to its popularity, Chiang Mai prices are rising. However, even someone with a modest US income is able to live well in the city. Even if you’re opting for short-term rental apartments, you shouldn’t need to spend 30% of your monthly income on a place to live.
Of course, you may want to travel to more expensive places like Paris or Rome. If you’re going to stay in these places for longer than a couple of weeks, though, then make sure you can afford to spend less than 30% on rent.
How Can Remote Workers Find Cheaper Housing?
Are you struggling to keep your accommodation costs below 30% of your income? Fortunately, there are a few ways you can lower your living costs. First, consider staying in one place for a longer period of time. This is what most digital nomads do; the monthly cost of an apartment usually comes with a cheaper daily price. The experts at Headout put it like this: “The longer you stay, the better rates you get, no matter where or whom you’re booking with.”
You can also save money by opting to stay in a coliving space. According to Anyplace contributor, Natalie Lyall-Grant, “Coliving spaces offer flexible communal living at surprisingly affordable rates in highly sought out locations. You can stay in a private room, but share a workspace with reliable internet and beautiful living spaces with other entrepreneurs, creatives, and remote workers from all over the world.”
Finally, consider your destination carefully. You may have always wanted to visit Tokyo, Paris, or New York City. However, upon researching the living costs, you may realize that it simply isn’t possible to live there and keep within your budget. Until you start earning more, choose a country where it’s easy to find comfortable accommodation for a low price. This can end up taking you to some extraordinary corners of the planet.
Which Destinations have the Lowest Living Costs?
There are many studies examining where the lowest living costs are. These generally include countries like Vietnam and Thailand. However, wherever you go in the world, you can find cheap destinations.
For instance, if you’ve always wanted to explore Europe, then you’ll be amazed at how cheap the accommodation can be in places like Bulgaria, Romania, and Poland. Trade Paris for Nantes, Munich for Berlin, and Helsinki for Tallinn to see massive rental savings. These cheaper places are just as worth the visit.
If you fancy a great American road trip, then consider amazing cities like Denver, Nashville, or New Orleans, rather than New York or LA. Also, remember to think carefully about where you live within each city. If you’re happy to be a 20-minute bus ride from the city center, then you could easily cut your rental costs by a third. It just comes down to researching all your options before you book a trip abroad.
You should now have a good idea of how much of your monthly income should go to housing. The experts recommend 28% of your gross monthly income but this is an upper limit. If you’re location-independent, see how much you can reduce this cost. Find a place where you can be productive and build up your career because the more you earn, the less you’ll spend on housing.
Where to next? Find flexible month-to-month rentals across the globe on Anyplace.
Born in Oxford, UK, Thom has been a digital nomad since graduating from the University of Sheffield in 2016. He’s a freelance writer and founder of Thom Brown Travel. Thom specializes in minimalist, ethical, and meaningful travel writing.