Depending on your salary, debt-to-income ratio and the cost of living in your city, your housing options likely fall somewhere between "five roommates in a studio apartment" and "penthouse with a view."

That last one may be a bit of an exaggeration, but the first one unfortunately is the reality for many today. Budgeting isn't easy, and figuring out how much to budget for housing, especially when you might not know how much your monthly checks at a new job in a new city will be, is even more difficult.

Regardless, here's some sage advice on budgeting for your housing costs based on any income.

Quick disclaimer: This advice works best for the average recent graduate (and by recent, we mean between now and the last 7-10 years). It even works for those who decided to forego college to pursue the workforce. This advice isn't as relevant for either those who graduated with a software engineering degree debt-free from a prestigious private university or  those $75,000+ in student loan debt with a degree in a competitive or sparse field.

First, make a budget

It's much better to budget around your must-pay items instead of your aspirational lifestyle habits. First, calculate how much you need to survive with fixed expenses, like student loans and car insurance. 

Spend no more than 1/3 of your income on housing

After you've figured out your "must pay" expenditures, aim to spend no more than 33% of your take-home pay on housing. So, if you make $35,000 per year, you should budget about $962 for housing expenses each month. However, with student loans or other relatively long-term debt (let's be honest, six years is a long time to pay for auto loan expenses), this number should likely be less.

Here's an example: Let's say you live in Chicago and earn $35,000 per year. After taxes, your biweekly paycheck is $1,038, meaning you earn $2,076 per month.


TOTAL LEFT: $1,291

Figure out how much to save each month.

When it comes to determining how much you can afford after you've done your budgeting, consider how much you want to save. Let's budget that you only are able to save $100 per month, meaning you would spend nearly $1,200 on rent and utilities.

Depending on where you live, this number may be unrealistic at both ends of the spectrum. In St. Louis or Kansas City, for instance, $1200 per month can get you a luxury loft or an expensive home. In New York City, that will get you a closet with a friend. In the Bay area...well, it might not even be possible.

"Whether you're budgeting for housing or paying ahead on your debt, the less you can pay for fixed expenses, the better."

It's important to remember to talk to your rental company before signing your year away in a lease. If you can only live comfortably with rent that costs $900 per month, but utilities aren't included, you could quickly find yourself in an uncomfortable situation. But sticking with a $900 per month budget with utilities and all other expenses included, you can use the extra money to beef up your savings.

Let's even take it one step further. Say you get a roommate or two and live in a three-bedroom apartment that you can split and pay even less. Whether you're budgeting for housing or paying ahead on your debt, the less you can pay for fixed expenses, the better.

After you've calculated all the "musts," consider setting aside some money for fun spending in your budget, if there's room. But stick to your budget! Prioritizing going out with friends will land you in your parents' basement quicker than you think. 

How do you budget for housing expenses? Do you have a trick you always use, or just wing it? We'd love to know!Tweet us @MoneyMix. 

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