Finding an apartment anywhere in Nigeria that is within your budget can be difficult. One rule of thumb is to keep your rent well under one-third (1/3) of your income but an informal survey showed that most people try to keep rent expenditure under 10%, with varying levels of success.
According to the rule of thumb, if you take home N100, 000 every month after tax, pension and other deductions, 30% of that is N30, 000 monthly and by 12 that is N360, 000. Your rent should therefore be no more than N360, 000 annually. If it is more than that, you are living beyond your means.
Since rent in Nigeria is still mostly paid annually, you may even be obtaining a personal loan from your bank or an allowance from your employer to fund the rent. Sometimes these come with interest payments and an allowance may even incur some tax deductions. This is why you should stick to 30% as per the rule of thumb or better still, aim for the 10% or lower as in our informal survey.
So, if you take a personal loan at work to pay your rent then make sure your monthly deductions are no more than 30% of your income. So, if you take home N100, 000 monthly or N1.2million annually then your rent should not be more than N360, 000 which matches 30% of your N1.2million. You should then apply for a N360, 000 loan from your bank or employer and you can spread the payments over the year.
But, if you borrow to pay for your rent there may not be room for any more borrowing. Any extra debt you take on will rob you of a decent amount of savings.
How much of your salary do you pay as rent? Please let us know in the comment section below. _________________________________________________________________________
This post was written by Ugodre Obi-Chukwu, a chartered accountant and Founder of Resourcedat, Nigeria’s first online document and data sharing website. He asks intuitive questions to try to demystify popular norms that affect the way people live, think and spend money.