After living for a year in the second most expensive city in America, I was ready to look for a new apartment, and I wondered how much I could afford. But to be honest, I had no idea how much I should be paying for rent. Some people say 15% of your income, others say 50% of your income, but I didn’t want to take the risk of taking someone’s random opinion. I wanted real answers.

Well it turns out the answer was easier to find than I expected. CNN Money gives an interesting read on how you can determine the proper amount of cash you should fork over every month for your apartment. Basically there are two methods:

1. Take a look at what everyone else is doing and measure go from there.

If you take a look at the most recent survey results broken down by homeowners vs. renters, you’ll see that, on average, renters tend to devote about 33% of their income to housing.

According to CNN Money, the average amount that people spend on rent is approximately 33% of their pre-tax income. Although this is probably the most basic approach, it’s a good starting point. Personally I wouldn’t really go by this method since it ultimately depends on where you live. For example, living in San Francisco, if I limited myself to 33% of my income, I’d be living in a box, and I’m not exactly working at a McDonald’s either. (though he’s close ;p -Matt)

2. The second method takes into account your personal status, your other living expenses and is a more accurate way to estimate your rent expense threshold. First, you add up all your unavoidable expenses, such as loans or any other debt, cost of food, medical expenses, retirement fund payments, anything that you MUST pay per month. Then, subtract that amount from your after-tax income. Whatever is left is the maximum amount you can spend on rent. From here, you can decide to lower that number even more if you plan on using part of your income for leisure or any other unnecessary expenses that we all like to indulge ourselves with. Basically, this method gives us a absolute limit on how much we can spend on rent, and prevents us from getting ourselves in trouble by spending too much on rent.

After using the second method, I realized I could afford a lot more than I originally though I could, which opened up a lot of new housing options for me. Now, all I need to do is make more money for that loft on 3rd street…

Article is from CNN Money.