30% rule. Base salary only?

Submitted by eadgbe1994 t3_127nr93 in personalfinance

My base salary is $76k. In 2022 I made about $90k gross after bonuses and profit sharing.

I’ve rented apartments in Boston with multiple roommates for the past 5 years but I’m currently doing a 6 month stint at home with my parents to throw some gasoline on my savings. I really want to live alone starting late summer/early fall.

Should the 30% rule only apply to base salary? At $76k that would be $1,900 a month for rent based on the rule. Boston is obviously an extremely expensive rental market, so I’d be much more realistically looking at around $2,200 a month for a modest 1 bedroom (which is doable by factoring in my total gross pay).

My company is doing very well and I’m on track to likely earn around the same as last year if not more. Moreover, I’ll have at least $40k in savings at the end of this period at home.

Thoughts?

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teejay44 t1_jeex0zq wrote

It's a rule of thumb, not an iron-clad law.

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Rave-Unicorn-Votive t1_jef026f wrote

It's probably a better question to ask if 30% is realistic for a V/HCOL area. It's usually not and 40% isn't uncommon at all.

If the delta between base and total comp is 100% discretionary, I'd use the base for calculation purposes. But 35% of base on rent isn't financially reckless either.

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eadgbe1994 OP t1_jef1un0 wrote

Thank you. I’m contractually obligated to receive 3% of profits every quarter (small company so it’s not a huge amount, but still very fair) which is why I can say with certainty that my 2023 gross pay will be more than $76k - just a bit of a question of how much.

I agree that I’d be comfortable at 35% given the circumstances.

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bulldg4life t1_jeexl0a wrote

I wouldn't trust anything other than salary because everything else may not exist from one year to the next.

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meamemg t1_jef273h wrote

How consistent have the bonuses and profit sharing been. It really is just a judgement call about how likely you are to get them again. Mortgage underwriters look to see if you have gotten them 2 years in a row, and will treat them as likely to continue if you have. The same rule could be helpful to you,but of course you know your work and your company better than we do.

Also, can you make yourself a budget that has the higher rent and still comes out even or ahead if you don't factor in the bonuses? If so, you are probably in good shape even if you are above the 30% rule.

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Unlucky-Clock5230 t1_jeeybso wrote

As the other guy said it is not a rule but a guideline. If you are spending more than 30% of your total income in housing costs your expenses are out of balance and other things suffer such as your savings.

Heck some people then look at it as if it was a goal, which is also off the mark. I make good money, I could afford a lot more house but it is awesome that my current mortgage payment is only 12% of my gross, it makes it super easy to find money to save.

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DiNovi t1_jeez58x wrote

the fact is the 30% rule just doesn’t work in many cities anymore. don’t sweat it

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shadracko t1_jefl0sk wrote

No, it should apply to total gross salary. But bonuses is often unpredictable, and you certainly shouldn't be counting on money that may not arrive. It's kinda up to you to decide how "certain" a bonus is.

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