Determining how much of one's income should go towards Rent is a decision that requires balancing a personal budget with the stark realities of the housing market here in Canada. 

Some Canadians will find the numbers in this article nearly impossible to achieve due to bloated housing prices. Think of people Living in provinces like British Columbia or Ontario. 

On the other hand, those in the prairie provinces may find they're spending less than this due to a more stable market and lower costs of living.

Let's dig in.

How much should rent be of your total income?

In Canada, a common guideline is that rent should not exceed 30% of an individual's gross monthly income.

This rule of thumb helps ensure that tenants can comfortably afford their housing while having sufficient funds left over for other necessary expenses, including savings, transportation, food, and healthcare. This percentage can be a good starting point when searching for a new apartment or house to rent.

As mentioned, the cost of rent varies significantly across different provinces, cities, and even neighbourhoods, making the 30% rule not always feasible for everyone. 

In markets where housing is particularly expensive, renters might find themselves allocating a larger portion of their income to rent. On the other hand, in areas with lower living costs, tenants may spend considerably less than 30% on their monthly rent.

While the percentage guideline serves as a helpful framework, each individual must consider his or her specific circumstances, including income, debt levels, and lifestyle needs. For example, someone who is debt-free could likely allocate more than 30% because they don't have any excess interest expenses.

On the other hand, for someone who has a chunk of their income going towards interest expenses on outstanding debt, the 30% rule may become difficult.

An additional budgeting hack to figure out your Rental budget

Another budgeting approach is the 50/30/20 Budgeting Framework, which recommends that 50% of one's income goes to necessities like housing (rent) and food, 30% to wants such as entertainment or eating out, and 20% to savings or debt repayment. 

Within this framework, rent forms a significant part of the "50" portion of the budget but still underlines the importance of a holistic approach to personal finance.

Key factors that will influence your cost of rent

Location and market trends

The location of a rental property is one of the most influential factors that determine its cost. An equivalent home in Manitoba is unlikely to cost you more than one in Ontario or British Columbia.

In addition, market trends in particular areas can cause rental prices to fluctuate. For example, properties in sought-after neighbourhoods or those offering easy access to amenities such as public transportation and entertainment often demand higher rent. 

Seasonal trends can also affect rent prices. Certain times of the year see an increase in demand, potentially driving up costs.

In contrast, areas with low demand or in the process of development may offer more competitive rental prices to attract tenants.

Rent depends heavily on the city

Even more important than the province, rent prices can vary greatly depending on the city and its specific neighborhoods. 

Cities like Toronto and Vancouver are known for their high cost of living, with downtown areas typically being the most expensive. For instance, renting in Downtown Toronto commands some of the highest prices, with average rents for a one-bedroom apartment reaching upwards of $2,500 a month. 

Scarborough, a neighbourhood on the eastern side of Toronto, often has more affordable options available, illustrating the stark contrasts even within a single city.

Similarly, Vancouver follows suit as an expensive city, where areas like Burnaby balance between urban living and more competitive rent prices. It's a reflection of Vancouver's status as the country's most expensive city to live in.

Rent is significantly influenced by local economic conditions, proximity to core urban centres, public infrastructure, and community features across Canadian cities. 

Some tips to save a bit of money on rent

Research affordable areas and weigh your options

Identifying affordable areas is crucial to finding rentals that do not exceed one's budget. Renters should explore neighbourhoods with lower living costs while still considering the distance to work and essential services. 

Identifying some sort of sweet spot when it comes to a commute and price can end up saving you a lot of money. For example, here in Alberta, people often move to cities outside of Calgary, increasing their commute to work and leisure activities but also reducing their rental costs.

If you find the reduction in rent is worth the extra commute both on a convenience and financial level, you may have found a way to trim back on costs.

Utilize a rental affordability tool

Rent affordability calculators are valuable resources for renters. These tools take into account one's gross income and calculate a suggested rent budget. 

For instance, the Rent Affordability Calculator from Redfin can help renters find a reasonable range for their rental affordability. By inputting basic financial information, individuals can quickly establish a rental budget that aligns with their budget.

Consider a roommate

The financial benefits of living with a roommate can certainly be attractive. This more so pertains to single renters or possibly couples without children. However, I have witnessed families renting rooms out to people when times have gotten tough.

This allows people to share the cost of rent and other expenses, such as utilities. 

Before deciding to share a space, it is important to consider personal lifestyle and compatibility with potential roommates to ensure a comfortable living environment. It is not an easy process to get a roommate out, so it's not a commitment that can be made on a whim.

Choose an apartment over a house, if possible

Apartments usually offer affordability and convenience, especially in urban areas where the cost of living can be higher. If you have a lifestyle that suits an apartment or can possibly adapt your lifestyle to be comfortable inside of one, you're generally going to save money.

On the other hand, renting a house provides more space, privacy, and personal outdoor areas but typically at a higher price point. The choice is ultimately up to you.

Don't forget to consider additional costs

When determining how much of one's income should be allocated for rent, it is fairly important you consider the additional costs of the area you're renting from as well.

Utility and bills

One must include utilities such as electricity, water, heating, and internet in the monthly budget. A typical range for utilities could be between CAD $200 and CAD $300 per month.

However, this is heavily dependent on where you live and the home itself. For example, a house or apartment with baseboard heating may have cheaper rent; however, the cost of electric heat can be much higher than that of natural gas. So, be sure to consider this.

Transportation costs

Transportation costs should be thoroughly assessed. I've watched numerous people rent outside of a major city to save money, only to realize it is costing them way more due to expensive travel costs.

Gas, insurance, vehicle maintenance, and even possibly vehicle payments are all things you need to factor in. If you're saving $500 a month in rent by moving outside a major city but are spending $700 a month in gas to get to work and back, you're not really saving any money.

Security deposits

Tenants are typically required to pay a security deposit upon agreeing to a lease. This deposit safeguards the landlord against possible damages to the property or unpaid rent. 

In Canada, security deposits generally cannot exceed one month's rent, but it's important to factor in this cost if you're considering renting. In addition to this, utility companies will generally require a security deposit as well, particularly if you don't have a long history of paying them.

Tips to increase the amount you can pay for rent

Reduce debt levels

Debt payments eat away at your salary. Depending on how much debt you're in, this can be either a minor inconvenience or a crippling burden. If you eliminate your debt, this leads to more after-tax cash flow, which can ultimately lead to you being able to afford to pay more for rent.

This can be anything from eliminating a car payment to paying off a credit card debt. Every bit of debt reduction helps.

Increase your salary

This one is not easy, obviously. However, if you can increase your income, you can afford to pay more for a rental property. You don't have to be a 1% income earner in Canada to afford to live. Any meaningful increase to your salary certainly helps your living situation.

Develop a side hustle

Many Canadians are now doing things on the side to increase their take-home pay. A simple side hustle that generates even a couple hundred dollars a month can end up paying for your utilities, which ultimately could lead to you being able to afford more in rent.

Manage your spending habits

This is arguably the easiest tip to execute on this list because it doesn't require much effort at all. Developing a budget, monitoring spending, and being wise with your money can lead to more cash in your pocket and, ultimately, more money available to pay your rent.

How much rent can you afford on a $60,000 salary

The general guideline followed by financial experts suggests that no more than 30% of gross monthly income should be spent on rent.

Your calculated rental budget:

• Annual Gross Income: $60,000
• Monthly Gross Income: $5,000
• 30% Rule Allocation for Rent: $1,500

Sadly, because of the real estate situation here in Canada, many Canadians will struggle to find a rental for $1500 that doesn't result in significant compromises. Unfortunately, it is the reality of the situation right now and paints a stark picture when it comes to the quality of living in Canada.

What about going to 40% of your gross income?

Experts state that when rent exceeds 30%, people may struggle to pay bills. For this reason, the higher percentage (40%) can lead to what is known as being "house poor," where a vast majority of a person's income is dedicated to rent, leaving little for savings, emergencies, or other expenses.

As mentioned, many financial experts suggest that individuals should not spend more than 30% of their gross income on rent. However, many Canadians are finding this nearly impossible due to skyrocketing housing costs, so 40% may be a more realistic number these days.