The excitement that comes from moving out and starting on your own can quickly be replaced with anxiety if you have no clue how to budget for your first apartment. Don’t worry, you can avoid most of the common issues people run into if you follow our guide.
Taken from Elizabeth Warren’s book is the 50/30/20 rule; this a great place to start for any beginner. The rule suggests that your after-tax monthly income should be spent this way:
- 50% -on necessities – your needs;
- 30% -on discretionary spending – your wants;
- 20% -on paying debt/savings;
Download an app, open a spreadsheet, or simply buy a notebook and start organizing your monthly earnings and expenses according to rule.
However, before we get into organizing your monthly expenses, we need to analyze the moving expense, since this expense will be the first one you face when you move out. You’ll need to have some cash previously saved, right at the start, to cover the one-time moving expense. Once this is covered, you can follow the 50/30/20 rule to organize your money for the future.
This expense, although it is a one-time expense, is one of the most important expenses. Your previously-saved money for moving expense will be spent on:
- Rent – (for the first month and, if required, last month);
- Security deposit
- Broker’s fee (if you can’t find a no-fee apartment)
- Any additional fees
- Moving company & transportation;
Besides the one-time moving expenses, you will also have all the regular monthly expenses (listed below).
Your after-tax monthly income should be budgeted and spent this way:
- 50% -on necessities:
- Rent – When choosing an apartment make sure that the rent is not over 25% of your income. Also, aim for an apartment which has some utilities included in the rent. Always pay the rent first.
- Utilities – Such as electricity and gas (if not included in the rent). The cost of heat varies throughout the year; so in the months when it is less, save that money for winter, when the price gets higher.
Moreover, double-check if there are any other utilities (like amenity fees) that you may need to cover.
- Food – Plan to go for weekly/monthly grocery shopping, and try to save money on food by cooking at home.
- Bills – Such as cable/internet and cellphone bills (as well as parking, car gas if you have a car). Be sure to pay them on time to avoid damaging your credit and having to pay additional fees.
- Insurance – Such as renter’s insurance (although not mandatory for most rentals, it is a great thing to have), car insurance, health insurance, etc.
- 30% -on discretionary spending:
- Transportation (metro card, car services, etc.)
- Shopping (clothes, makeup, accessories, bathroom necessities, etc.)
- Entertainment (streaming services like Hulu, Netflix, etc.)
- Going out (for drinks, to the cinema, theater, coffee shops, restaurants, etc.)
- Memberships & subscriptions (such as gym, yoga, spin cycle, Spotify, Audible, etc.)
3. 20% -on paying debt/savings;
- Credit card payments
- Student loan payments
- Car payments and car loans
- Any type of debts, payments
Always try to save up at least 100$ per month for emergencies. If you have any “leftover” money from any of the previous categories, use it to pay more of your debts or add it to your savings.