Step-by-Step Rent Calculation

Rent affordability is determined based on your monthly income, monthly debts, and a rule that allocates a percentage of your income towards rent. The first thing you do is subtract your **target savings** from your income to see what remains for rent.

• Step 1: Calculate your Income After Savings (first subtract savings percentage).
• Step 2: Calculate your Debt-to-Income (DTI) ratio.
• Step 3: Apply the rent rule (usually 30% of income, but can be customized).
• Step 4: Calculate your total housing cost (rent + utilities + insurance).
• Step 5: Compare your housing cost to the affordable rent.

Example Calculation

Let’s assume the following for John:

• Monthly Income: $5,000
• Monthly Debts: $1,000
• Utilities: $200
• Insurance: $50
• Target Savings: 10%
• Rent Rule: 30% of income

Step 1: Calculate the **Income After Savings**:

Income After Savings = 5000 - (5000 × 10%) = 5000 - 500 = 4500

Step 2: Calculate the **DTI Ratio**:

DTI = (1000 / 4500) × 100 = 22.22%

Step 3: Apply the rent rule:

Affordable Rent = 4500 × 30% = 1350

Step 4: Calculate the **Total Housing Costs**:

Total Housing Cost = Rent + Utilities + Insurance = 1200 + 200 + 50 = 1450

Step 5: Compare housing costs with affordable rent:

John’s total housing cost ($1,450) is **$100** more than his affordable rent ($1,350).