Doing Your Own Paycheck to Paycheck Analysis
Step-by-Step Instructions
Step 3: Calculate Rental Affordability
Step 3: Calculate Rental Affordability
Determining the affordability of rental affordability involves a five-step process.
(1) Determine annual rents for desired rental unit types.
Suggested data sources were provided under step one. Do separate calculations for each size unit. Multiply monthly rents by 12 to get annual rents. Add in utility costs not already included in the monthly rent.
Example: 1BR @ $500/month = $6,000/yr
2 BR @ $750/month = $9,000/yr
(2) Determine income needed for rent to be affordable
Divide annual rents by .30. This calculates the amount you need to earn annually so that rent is no more than 30 percent of income, a common rule of thumb for affordability.
Example: 1 BR @ $6,000/.30 = $20,000
2 BR @ $9,000/.30 = $30,000
(3) Convert annual income to hourly wage needed for rent to be affordable
Divide annual amount needed (Step 2) by total number of hours typically worked in a year (2,080). This gives you what you need to earn per hour to afford the rent.
Example: 1 BR @ $20,000/2,080 = $ 9.62/hour
2 BR @ $30,000/2,080 = $14.42/hour
(4) Determine hourly wages of selected occupations.
If wage data are annual, convert to hourly by dividing annual wages by 2,080 to get hourly wages.
Example: Retail Salesperson - $18,000/2,080 = $ 8.65/hour
Security Guard - $23,000/2,080 = $11.05/hour
(5) Compare the salaries of your selected occupations to determine if the salaries are sufficient.
Example: Retail Salesperson @ $8.65/hour < 1BR @ $9.62; < 2 BR @ $14.42
Security Guard@ $11.05 < 2 BR @ $14.42
At these wages, a retail salesperson cannot afford a one or two bedroom rental unit. A security guard can afford a one bedroom but not a two bedroom unit.
Step 4: Create Charts >>
