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’re on the hook for a lot: you’ll have to pay for rent, utilities, food, and so much more.
We all know that scary feeling at the end of the month when your account hovers dangerously close to $0 and those dreaded overdraft fees loom large. That’s why we’ve compiled this complete guide to manage the financial burden of moving into your first apartment.
Follow our lead to manage your apartment expenses like a pro and never see your account reach $0 again.
We’ll get into:
- Why you should budget in the first place
- How much of your income should you spend on rent
- What other apartment-related expenses you need to consider
- Where you can save a buck or two
- How to budget your income and expenses
Why you should budget in the first place
Moving into your first apartment means a lot in terms of independence as well as responsibility, especially financial responsibility.
Signing an apartment you can’t afford is risky, but it’s more common than you think: A recent study showed that 1 in 4 people are paying more than 50% of their income on rent and utilities. (Harvard) That’s a heck of a lot.
Calculating exactly how much you can spend on rent will allow you to begin saving money for your financial goals instead of living paycheck-to-paycheck.
How much of your income should you spend on rent
The big question surrounding apartment expenses is: How much of your income should you spend on rent?
Ask a traditional financial advisor, and they’ll probably tell you that 30% of your gross income is how much you should spend (gross income is the amount of money you make before deductions like state and federal taxes).
And they’re not the only ones. 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. Enter the 30% rule.
Long story short, 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.
Nor does the rule consider the variable costs of living. The amount you’ll pay for a one-bedroom in the hustle-and-bustle of NYC may have you living like a king in a more affordable place like Kansas City.
All this begs the question: if not 30%, how much of your income should you spend on rent?
The short answer – it depends. (Not what you wanted to hear, we know.)
Your rent budget should be contingent upon your financial goals and the amount of money you’ll have after taxes and fixed expenses, something we 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 long-term financial goals. Are you aiming to put a lot of money away for the future or live in the moment?
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.
For more on how to split your earnings between expenses, savings, and leisure, jump to the 50/30/20 rule below.
What other apartment-related expenses you need to consider
The bulk of your living expenses will come from your monthly rent check, but there are a handful of additional expenses to consider when creating a budget for your first apartment.
- Agent or broker fees: Moving to the big city? If so, you may be surprised at how difficult it is to find an apartment. A real estate agent may help you get a leg-up on the competition – but they don’t come cheap. Clarify the broker’s fee and carefully consider costs before signing on with an agent.
- 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 digs, 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. But, 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.
Recurring expenses, aka the stuff you’ll have to pay on the reg
- Utilities: This may be the first time you have to pay for things like electricity, heat, gas, 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.
- Groceries: You’ll have to eat, and food costs money. The USDA publishes average costs of groceries for different populations to help you budget, but account for around $200 to $250 per month to start.
- Public transportation: Assuming you don’t have a car, you’ll need to budget between $80 and $120 for a monthly public transportation pass in major cities.
- 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 liability and medical bills. You can get a policy for as low as $5/mo – worth it!
Where you can save a buck or two
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:
Share your space with roommates
The most obvious way to save is by sharing your place with roommates. In most major cities, sharing a two-bedroom apartment with a buddy will be friendlier on your pocketbook than paying for a one-bedroom apartment all to yourself.
Love it or hate it, roommates may be a financial necessity for your first apartment. If you fall into the “hate it” camp, living with other people can be really tough, so we’ve compiled some tips to help you boost your roommate relationship.
Get your furniture from friendly sources
Before rushing to fill your new place with that brand-new couch, complete with a throw pillow and coffee table, take your time and only buy the essentials to start. You likely have less space in your apartment than you think, so if you can avoid the initial temptation to buy that complete IKEA set, you’ll thank yourself afterward.
Slowly acquire furniture that’s functional, serves a purpose, and matches your feng shui. Use your friends and family to source unwanted pieces of furniture they’re willing to get rid of. You’d be surprised at the goodies you can find hidden in basements and attics.
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.
When it comes to internet access, it’s common to overpay. Telecom companies are keen on selling you more bandwidth than you actually need, or your building’s infrastructure can really handle. Only pay for the MBs you use.
Pro tip: Buy your wireless router online instead of renting it from the cable company. You’ll get a few good years’ use out of it, which will save you big bucks over time.
Save on electricity
Not paying for electricity isn’t an option (unless you’re ready to give up on just about everything), but there are a few things you can do to lower your bill.
Take practical steps to insulate and winterize your apartment. This will drastically cut your cooling or heating bill since your aircon or heater won’t have to work as hard to keep the temperature comfortable.
You should also avoid peak hours when running energy-intensive appliances like your washing machine, dishwasher, or dryer. Instead, use them at night when the electric company has discounted rates for the electricity you use.
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 don’t necessarily need, like eating out, going to bars, 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?
To make saving easier, set up recurring transfers from your checking to savings account twice per month (immediately after you get paid). This little trick will force you to budget with your remaining paycheck, and the 20% will feel less significant.
Sidenote: That 20% savings can add up fast, thanks to the wonders of compound interest. If you focus on saving with every paycheck, you’ll have a solid pot of cash by the time you reach retirement age.
The best part about budgeting in 2018 is the ability to keep close tabs on exactly how and where you’re spending your money. All banks and credit card providers can provide a detailed digital statement you can download as a spreadsheet containing all the credits and debits in your account.
Use the spreadsheet to deep-dive into your spending every 30 days, preferably at the end of the month. Sort your expenses into categories and see if you’re spending within the 50/30/20 rule. If you’re not quite hitting the mark, figure out where you need to adjust.
Have spreadsheet-phobia? Don’t fret. There are tons of budgeting apps like Mint, You Need a Budget, and Pocket Guard that make budgeting easy on your smartphone. Some will even link directly to your bank account and help you automatically save and invest.
If you’re looking for other ways on how to split expenses with roommates, try opening a joint bank account or credit card. Use it to pay all of the expenses related to your apartment, including utilities and essentials like cleaning supplies. This way, you can forget chasing down receipts and bills at the end of the month; instead, just pay off the shared credit card since all expenses will be concentrated in one location.
Budgeting is more of an art than a science, and there’s no one right way to manage your money. The key is knowing what you want to get out of your finances and putting your cash to work to meet your goals.
Our 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 pad and all that comes with moving into your first apartment.