How much rent can I afford?

Disposable income is being disposed of at a record pace. Plasma TVs, digital cameras and talking navigation systems are coaxing the almighty dollar out of consumers’ wallets.

With low financing and scores of temptations, it’s no surprise that household debt has reached record highs. According to research by the Federal Reserve, about 14 percent of disposable income was used for debt payments in 2002.

How does rent figure into the mix? Usually, it’s the largest slice of the monthly budget, consuming some 25 percent to 30 percent of gross income, according to federal housing guidelines.

Problem is using that figure may get a tenant in trouble. Luxuries unheard of a decade ago, such as laser printers, cell phones, palm pilots and laptops, are taking ever-larger slices of the pie. So are the accessories, such as high-speed Internet connections and deluxe surge protectors for $199. Factor in batteries and rechargers, combine car payments and the price of gas – and renters may find themselves driven into a financial corner.

“I see it all the time,” explained a Best Buy employee, whose identity was not disclosed. “They buy a DVD player, and a couple $20 DVD’s. Next they’re back buying a larger, higher resolution TV, then speakers. Pretty soon they’re getting the home theater system for $2,299.”

With too many consumers stretched thin, the American Bankruptcy Institute reported personal bankruptcy filings reaching an all-time high, with 1.6 million consumers hitting bottom in 2002.

How big a slice should you budget for rent? To find out, get a handle on your finances. Whip out paper and pencil and chart a budget.

Without counting rent, start with fixed expenses, then variable expenses. Gross and net income comes later. From the past 12 months, pull out checkbook registers, bank statements, credit card bills and pay stubs for reference.

Fixed expenses, such as car payments and insurance, health premiums or loan debt, should be listed down the left side of the page in priority order. As a fixed expense, consider putting aside 5 percent to 10 percent for savings, too.

Families have extra fixed costs, such as childcare and education. Factor in the cost of public school versus private for the rental you are choosing, too.

Next, examine your lifestyle. Some variable costs are fickle, varying by desire. For example, are you the steak-dinner type? Or is peanut butter more your style? When it comes to clothes, is drip-dry or dry-clean on your list? If travel, movies and fine wine are a priority, factor those costs into your budget. Write them down under “variable expenses” in detail, in case they need trimming later.

Unexpected costs, such as medical, car repair and insurance deductibles, can be put under “variable costs.” After listing out actual expenses, total up your fixed and variable expenses from the past year at the bottom of the page.

Next, realistically assess your steady annual gross, or total income. Bear in mind that gross income is a somewhat mythical number found on paychecks, as in “now you see it, now you don’t.” The actual dollar amount received, called “take home” or “net pay” is what’s available to spend after deductions are taken.

If you’re working part-time or in a seasonal industry, be realistic about net earnings for the entire year ahead. For example, the entertainment industry can be fickle. “My tenant joined a hit television show at $25,000 a week,” a property manager, who did not disclose an identity, said. “I even called the studio.” When the show was cancelled, so was the tenant’s paycheck. The actor went into a deep depression and was nearly evicted. The lesson? Backup savings or employment is vital to your financial health.

For the self-employed, income assessment is more complicated. It’s a do-it-yourself enterprise, including deducting your own social security (at 15.3 percent) plus applicable state and federal taxes.

State taxes vary from zero to 11 percent. Ironically, the higher the income the less money is taken home. Federal brackets are based on marital status and taxable income, with single earners paying 15 percent on taxable income up to $27,050. Married or single, earning more than $297,351 in 2002 tosses you into the top rate, at 39.1 percent. Consult an accountant or attorney for details.

Once expenses are totaled up at the bottom, subtract expenses from net income. Then ask yourself, “how much rent can I afford and still keep my lifestyle?” The answer is in the numbers – and how you choose to use them. And above all – don’t make financial commitments you can’t keep.