Rent Poor? How Spending on Housing Is Crippling Your Budget

by Hank Coleman

Tips for Homeowners Renting Out a RoomAccording to the 2016 State of the Nation’s Housing Report from the Joint Center for Housing Studies of Harvard University, over 21 million people spend more than 30% of their income on housing. This suggests that millions of renters in the U.S. are cost burdened or “rent poor” because financial experts typically agree that housing should take up no more than 30% of an individual or family’s income.

A report from CNN Money confirmed the financial burden of being “rent poor,” as poor Americans spend approximately 72% of their income on housing, leaving them with little leftover funds to cover utilities, car payments, auto and health insurance, food, and other necessities.

Housing prices are increasing as the economy improves, which correlates with rising rental prices as housing demand outstrips available supply. This means that if you currently spend more than 30% of your income on housing – whether it’s rent or mortgage payments – then finding ways to lower your housing expenses is crucial for stabilizing your financial situation to ward off the negative consequences of rising rents and mortgage interest rates. Saving money on housing also creates new opportunities to save up for a down payment, pay off your loans more quickly, or even save up for a vacation.

What to Do if You’re Rent Poor

If you’re currently “rent poor,” then here are a few ways to cut back on your housing expenses:

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Take On a Side Job

Sometimes, the problem isn’t expensive housing as much as it is underpaid jobs. If your present job doesn’t pay you enough to live comfortably in your area, then you might consider taking on a side job to supplement your income. This can be a challenge for anyone who works more than 40+ hours per week, but if you have a flexible or part-time schedule, then consider the following side gigs:

Create a Passive Side Income

If you have limited hours available, then instead of a side job, you could develop a passive income stream to make money with minimal maintenance the long run. Creating a passive income requires more work upfront, but over time, this income stream will grow more independently, allowing you to minimize your housing-to-income ratio.

There are a few different types of passive income streams, such as Lending Club, which is a peer-to-peer lending program that lets you earn interest on small loans taken out by everyday people. Lending Club loans are ranked and attributed interest rates based on the riskiness of the loan, so the riskier the borrower is – based on their reported financial background – the more interest you’ll be able to make on the loans (but remember, there’s a risk of default for these loans, too).

Although passive income streams seem complicated when you’re first starting out, these can be immensely useful for making more money and lowering the percentage of your income that’s consumed by housing expenses.

Move to a Cheaper Area and Commute

Although this option isn’t right for everyone – especially if you’re a homeowner or you hate spending time and money on commuting to work – moving to a cheaper area could be a possibility for someone struggling to pay rents or even facing a rent increase at the end of your current lease.

This option will require a list of pros and cons to help you decide if commuting to work is worth the cheaper rent you’ll pay elsewhere, and alternatively, you could ask your boss for occasional telecommuting days so you can work from home and save a lot of time driving to and from your job.

Airbnb

Not all landlords allow this, but if it’s not explicitly stated in your lease agreement, then you could potentially offer some of your space to travelers through Airbnb in order to lower your portion of the monthly rent. Airbnb is easier for homeowners who might want to rent out a room to guests because it’s entirely up to you to decide whether to allow paying travelers to stay with you for a few nights. And, Airbnb may be a great wayt ot help you if you’re rent poor and struggling with your budget.

As with anything, there are risks involved – demanding/rude visitors, broken furniture, rowdy partiers, etc. – but renting out a room in your home is definitely worth considering if your housing expenses are becoming too burdensome to bear on your own. Just be sure to check your lease (if you’re a renter) and local laws regarding housing-related income before getting started.

Being rent poor doesn’t need to be an unfortunate reality for folks living in high cost-of-living areas. You can either mitigate the problem by finding additional means of income or by reducing your housing expenses through moving to cheaper areas or renting out a room. There is no perfect solution, but if you’re tired of paying a huge chunk of your monthly salary towards housing, then consider any of the above options to get your budget back on track and keep your housing expenses in check.

What about you? Are you rent poor? How are you combating spending too much of your income on housing?

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About Hank Coleman

Hank Coleman is the founder of Money Q&A, an Iraq combat veteran, a Dr. Pepper addict, and a self-proclaimed investing junkie. He has written extensively for many nationally known financial websites and publications. Hank holds a Master’s Degree in Finance and a graduate certificate in personal financial planning. Email him directly at Hank[at]MoneyQandA.com.


Hank Coleman has written 581 articles on Money Q&A. Learn more about Money Q&A on Twitter @MoneyQandA and @HankColeman.


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