(NewsNation) — In light of cooling inflation, the Federal Reserve cut its benchmark interest rate by half a percentage point — and another drop could come as price pressures continue to ease.
Housing costs are following suit: Mortgage rates are falling, and Zumper‘s national rent index shows that the median rent for a one-bedroom apartment went down by 0.1% this month to $1,533. According to Zumper, the price for two bedrooms decreased 0.2%, bringing the median rent to $1,912.
Still, people are struggling to pay for a place to live. Christopher Lyman, a financial planner at Newtown, Penn.-based Allied Financial Advisors, says younger people in particular are facing big challenges when it comes to housing.
“The same dollars need to go much further,” Lyman told the Wall Street Journal.
So how does one budget their rent along with all their other expenses? Experts suggest several rules of thumb to keep in mind.
30% rent rule
The 30% rule was cited by financial sites Nerd Wallet and Rocket Mortgage based on guidance given by the Census Bureau and the U.S. Department of Housing and Urban Development.
This rule essentially suggests people pay around 30% of their gross income on rent. Those making $4,000 a month before taxes, for example, should likely spend up to $1,200 a month on rent.
However, Nerd Wallet notes: “This is a solid guideline, but it’s not one-size-fits-all advice.”
In some cases, the website noted, one might be able to find good deals on rent that are even less than 30% of their income. Additionally, that figure might be hard to come by in cities like New York City of San Francisco, which Nerd Wallet said can have median rents over $2,000 for a one-bedroom apartment.
50/30/20 budget
Another way to budget your rent is by using the 50/30/20 method: allocating 50% for needs, 30% for wants and 20% for savings.
A person who earns $4,000 per month would want to spend $2,000 on rent, utilities, groceries, insurance and other necessary expenses, while they’d pay $1,200 on things like going out with friends or shopping. Following this measure, they’d have $8000 left over to save.
“Of course, you have the option to rework this budget based on your goals,” Rocket Mortgage said. “For example, if you want to eliminate your debt faster, you might skip discretionary purchases and put those funds toward repayment.”
Other ways to save
NerdWallet writes that people can find savings in other ways as well.
“Heat, water and electricity are needs, but premium cable, for example, falls squarely in the ‘wants’ category,” NerdWallet writes. “Try negotiating with your service providers to get a better deal on things like internet, cable and your cell phone plan.”
Using coupons and planning meals can help people maximize their grocery budget, NerdWallet said. And looking out for “move-in deals” before you find a place can also help. Landlords or rental agents sometimes offer special promotions, including a discount on the first month’s rent or having there be no deposit requirements, Nerd Wallet said. Signing a longer lease might also help people negotiate a better rent price.