September 14, 2022
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When it comes to allotting a portion of your income for rent, Cindy Marques, a Certified Financial Planner, says there is no blanket answer.
“There are a lot of factors at play informing an individual’s capacity to pay for things. Are you paying down other debts? Do you have other very high monthly expenses and bills? Do you already have a foundation of savings set up?” she says. “However, if we consider what CMHC considers as their threshold for mortgage eligibility, 32% is considered the standard maximum debt-to-income ratio for all monthly housing costs. The same thinking can be applied to rent.”
She adds that in a city as pricy as Toronto, it’s not uncommon for individuals to spend as much as 50% of their income on rent.
Although working future rent increases into your overall budget can be tricky -- particularly when the amount of increase is unknown -- it’s probably the best way to safeguard yourself as a renter living in a non-rent-controlled building.
“Set up an emergency fund of at least three months’ worth of total basic living expenses in the event there is an interruption to your income. In addition to this, I would advise adding in an extra month’s worth of rent to that total balance,” says Marques. “Look at it this way, if you can set aside just one month of extra rent then this can cover the difference of a 5% increase for 20 months, a 2.5% increase for 40 months, or an absurdly high 10% increase for ten months.”