An American friend now residing in Canada complained the rent and property prices in Vancouver. I questioned her rent-salary ratio, she quoted 1:4.5. Astounded by the low ratio despite the complaint, I, also currently paying 1:4.5 pre-tax (1:3 post-tax) on my rent, honestly think that her apartment deal as compared to my room deal, is brilliant.

The conversation reminded me of a Japanese colleague. I immediately frowned upon after learning that she was considering to spend near 1:2 for her rent. Despite her constant reassurance that “it’s okay”, I, based on her online shopping frequency, was convinced that a long term financial struggle is brewing.

Speaking from personal experience, I have in the past been famous among my Starbucks colleagues for my profligate spending on rent. At the record’s worst, my rent-salary ratio was 2:3, an unsustainable level which my colleague crassly commented as “no-life”. I, advocated the comfortable living idealism, resented the statement for far too long before I started realising that he was actually right.

How had it changed?

Half a year ago, due to the dire situation in securing a promising employment in London, I, abandoned my ideal living desire, finally caved in to the many procrastinated obligations – remit money back home, saving for travel and return ticket back to Malaysia – and reluctantly moved from a double room in a Victorian house to a 7m2 single room of an ex-council flat alike. As you would have imagined, the limited space found its way to allow misery to creep in.

However, the improved food affordability, the rising social activities and the rapidly increased saving reservoir that followed the effective reduction of rent-salary ratio from 2:3 to 1:3, offset the misery in no time. For a very long time, I was delighted to be living a more comfortable life with money to spend on things I desire.

The paradigm shift in my definition towards a room was so profound that I realised a healthy mentality towards rent is to never make it a priority, but to only consider after other obligations have been fulfilled. Otherwise, you are on course to self-imprisonment, only in a nicer room.

The question: How much rent should you pay before transforming yourself into a (renting) mortgage slave?

Holding to the aforementioned principle, the answer is to calculate the maximum rent affordable after fixing other spending allocations. For instances, allowance to satisfy the enormous appetite for shopping; incentive for dining out and trying out new restaurants enthusiasts; remit money back home; and savings for rainy days.

You must realise that all these “spending” are variable costs. They are not fixed and you have the complete power to adjust them according to your financial needs at any given time. For instance, if there is a planned holiday in Spain in two months, you know it is time to rack up the savings, perhaps from fewer dining outs and reduced shopping.

Rent, and transport if you are a travel pass purchaser, on the other hand, are fixed costs. Like it or not, these are the obligations you must fulfil every month. And this is the chief reason why they should be the last priorities, because you have no power of control on them once you have signed up the contract.

Using the same Spain holiday example, if you are already on a high rent-salary ratio, how do you see yourself saving for the pleasure of travel? Are you going to skip dinners or refraining from shopping, even for travel essentials?

It may sound identical to some people that regardless how much rent you pay, you will still need to save money by reduce spending on shopping and dining to fund the holiday. You are almost right. The key here is, however, the power of adjustment. If you were already on a high rent-salary ratio, spending allocation in other areas are relatively less than if you were on a low rent-salary ratio. This means that even if you reduce spending in the same proportion in both cases, the absolute monetary saving could be vastly different.

Let’s plug in some numbers to illustrate the situation clearer. Considering in both cases A and B, the monthly income is £2000 and 20% allocation in shopping and dining each, and the target is to save money for a planned holiday in Spain in two months.

Case A (rent-prioritised): Rent (good living condition) is the priority and after falling in love with a place, willing to fork out £900 rent/month. This translates to a combined £440/month allocation for shopping and dining.
Case B (allocation-prioritised): Rent (decent living condition) ranked the lowest and after careful budget planning, the maximum rent affordable = £600/month. This translates to a total of £800/month allocation for shopping and dining.

As both dining and shopping are adjustable (variable) costs, if I halved my dining and shopping for two months just to save for my upcoming holiday, Case A and B would return £440 and £800 respectively. If your holiday budget is £1000, it is now clear that an allocation-prioritised budget will bring you closer and faster to your target compared to rent-prioritised budget.

To summarise, the idea is if you are paying high rent, your spending power in other areas will be restrained. By the time when spending adjustment is needed, it will be less effective for rent-prioritised individuals. Therefore, it is crucial to define current and expected spending before finalising the maximum rent affordable. More importantly, is spending that extra on rent really make a significant difference?

My personal experience told me no, and that is my opinion on how one should measure how much rent to pay.