How to budget for your first apartment
Freeeeeedom! That’s probably the thought echoing in your head if you’re about to move into your first apartment. Whether you’re moving out of your parents’ place, leaving campus housing, or simply going out on your own for the first time, signing the lease on your first place is an exciting milestone.
But all that excitement can quickly go out the window when you realize you need to start budgeting for your rent, utilities, food, and so much more.
I’ve lived on my own for a year now, renting an apartment, and I want to share with you some things I’ve learned and experienced so you’re prepared for your first apartment!
How Much You Should Spend On Rent?
The big question surrounding apartment expenses is: How much of your income should you spend on rent?
A quick Google search will reveal a long list of sources telling you to only put down between 25% to 30% of your income on rent. The 30% mark has its roots in the National Housing Act of 1937. Over the decades, 30% became the yardstick for spending on rent, regardless of economic downturns, changes in purchasing power, or national increases in personal debt rendering it a relatively arbitrary figure.
While 30% may feel like a good rule of thumb, it’s by no means a hard and fast standard. Your financial situation is unique, and what works for someone else won’t necessarily work for you. The rule doesn’t consider permanent expenses and other financial obligations you may have like student debt or car loans or the variable cost of living.
Your rent budget should be contingent upon your financial goals and the amount of money you’ll have after taxes and fixed expenses, something I like to call cash in hand. So, how can you figure out what’s right for you? Start by calculating how much cash in hand you’ll realistically have at the end of the month. Once you get a number, think long and hard about your short and long-term goals. How much to save for retirement? Do you need a car for transportation? How much are student loans going to take from you? Nice furniture for my new place?
No matter what your decision, do not sign on to an apartment that’ll cost you more than the amount of cash in hand you’ll have available at month’s end. It’ll just lead to a situation where you’re overextending yourself, and you’ll wind up in financial trouble.
Other Rental Costs You Need To Consider
All apartments are different in terms of amenities and structure and what they will or will not add to your monthly rental fees. You may have the choice to add a utility package where you have a fixed fee from your apartment complex to use as much water and electricity as you want. There may be a trash valet fee, a parking permit fee, a garage fee, a washer and dryer rental fee, a garage or extra storage space fee, and of course there will almost always be a pet fee and initial pet rent.
One-Time Fees
- Moving: Unless you have hordes of friends and family who are willing to move your stuff for free, you’ll need to set some money aside to help finance this endeavor. Start with a moving checklist, decide exactly what you’ll bring to your new place, and calculate how much it’ll cost to transport everything. Renting a van or truck may seem like a good idea, but if you’re moving heavy furniture or easily-damaged appliances, it may be worth the extra cash to pay professional movers or at least renting a dolly… especially if you get the third floor. Also, you’ll have to pay for gas and mileage if you go the DIY route, a cost that is often overlooked.
- Security deposit: Most landlords will require some sort of guarantee that you’ll take good care of their apartment in the form of a security deposit. Traditionally, it’s a full month’s rent paid via check, but that’s changing. Some landlords may require you to fork over two months’ rent, especially in big cities like New York and Los Angeles and some may only require the prorated rent if you have a good credit score.
Recurring Expenses, AKA The Stuff You’ll Have To Pay On The Regular
- Utilities: This may be the first time you have to pay for things like electricity, heat, water, internet, and cable. Ask friends and family how much they pay to estimate your utility expenses for the month. If you’re moving to a new city, start by budgeting at least $200 a month for utilities. In my experience, Electricity is always the most so if you can just use opened windows or fans over the A/C, you should. These days cable isn’t necessary for most but don’t forget about your phone bill. It’s not a utility but it can be overlooked!
- Groceries: You have to eat, and food costs money. The USDA publishes average cost of groceries for different populations to help you budget, but account for around $200 to $400 per month to start and consider getting a membership to a grocer like Costco or Sam’s Club to buy in bulk ingredients you may use on the regular.
- Tip: Walmart’s great value brand is probably the cheapest option you can find for quality foods and it is usually just the name brand stuff repackaged to sell at less expense!
- Renters Insurance: You’ll be stashing lots of stuff you care about (think: laptop, TV, camera, etc.) in your apartment, so it’s smart to protect it from theft, fire, or other bad things – in insurance lingo, called perils – that could happen. Plus, renters insurance coverage helps out with other things like temporary living expenses if your place becomes unlivable, as well as personal liabilities and medical bills. You can get a policy for as low as $5/mo – worth it!
How To Save More Money
Any business owner can tell you cutting expenses can have a significant impact on the company’s bottom line. Your bank account is no different; think of your account as its own business entity with an income stream (your salary) and expenses (utilities, rent, food, etc.) that need to be paid. You can increase the amount of dough left in your account at the end of the month by cutting back and reducing those expenses. Here are some places where you can easily pinch a penny.
- Roommates
- The most obvious way to cut back on expenses. It is not always easy or fun but you find ways to make it work and at least you can both have your own bedroom space. Think of it as a mini TikTok house haha.
- Get your furniture from friendly sources
- Really blueprint your interior design before going all in. See what fits and whats necessary. Ask your family or friends if they have furniture they will donate to you or find cheap stuff at places like Goodwill or FB Market Place.
- Cut the cord
- Cable TV is expensive. Ask yourself if it’s really worth the extra money to pay for cable news, sports, and other channels that you don’t necessarily watch. Instead, invest in streaming services like Netflix, Hulu, or Amazon Prime. They are significantly cheaper and have a great selection of movies, TV shows, and original content.
- Pro tip: Buy your wireless router online instead of renting it from the cable company. You’ll get a few good years’ uses out of it, which will save you big bucks over time.
How To Budget Your Income And Expenses
Once you found a place and settled in, the next pressing question is how to budget for everyday life in your new apartment. A great rule of thumb is the 50/30/20 rule (not to be confused with the 30% rule above). You can budget your hard-earned income as follows:
- 50% for fixed expenses. This includes rent, bills, insurance, and any loan and debt payments you need to make.
- 30% for fun! This is everything you want but do not necessarily need, like eating out, going to the movies, buying clothes, etc.
- 20% towards savings. It could be contributions to your 401(k) or IRA or simple deposits into a separate savings account. Anyone say adulting?
- My number one piece of advice? Don’t overdo yourself. Stay within your limits and don’t overspend. It’s easier to live with less than to struggle to make ends meet because you bit off more than you could chew. Most importantly, enjoy your new space and all that comes with moving into your first apartment!
Kat Brigman, Peer Coach, Center for Personal Financial Management
