There is an old rule of thumb that no more than 30% of your monthly income should be spent on your rent. Of course, nobody knows if that 30% is gross income or net income. I think that in ideal world, yes, it would be nice if we can spend only 30% of our NET income on rent. In reality that percentage can be much higher.
Rent is usually one of the largest costs people have to pay
So how do you get to the amount which you can afford to pay every month?
Let’s say you are making $5,000 per month gross income, which means that after taxes and deductions, you put in the bank roughly $3,500. From your net pay deduct your transportation cost (monthly public transportation cost or car payments plus average monthly cost for gas), gym membership, cell phone bill, credit card payments, food, average utilities and some amount for entertainment, leisure, buying clothing and anything else you might buy each month.
Once you have deducted all of those expenses and hopefully you put some amount into your savings/investment account (whatever the amount might be), you will get the amount which again, will not all be spent on rent.
If, after all those deductions, you ended up with $2,000 in the bank, you should leave $400-$500 (maybe more) in your account for any unforeseen events. In this case, the amount you can afford to pay for rent every month would be around $1,500 per month, which is almost 43% of your net income. It would be nice if it was only 30%, ha?
This is just a brief example how you can calculate what you can afford to spend on your rent payments each month.
Of course, you know your finances the best so take into the account all costs you might incur every month before signing the rental agreement.