No matter your personal situation, you may feel overwhelmed by the inevitable spending you will be doing, especially when it comes to paying rent. However, there are many steps you can take to lower costs enough for your budget to accommodate your living arrangement. Learn how here.
Importance of Budgeting for an Apartment
Depending on where you live, you might find that renting is more expensive than you originally anticipated. Or perhaps you discover that your salary doesn’t get you as far as you had hoped. Either way, it’s important to know how to budget for your first apartment or living situation, whatever it may be. With a proper plan in place, you won’t be spending more than expected, and you will have more funds for other things.
How To Start Your Apartment Budget
The following process will guide you in starting your first budget:
Figure out your monthly income.Calculate all your monthly expenses.Subtract your expenses from your income to see what’s left.Give yourself a small buffer.
If it’s your first time living on your own without any financial help, you might have to adjust your expectations and numbers a few times to make them realistic. You likely didn’t have to deal with the same expenses during college or while living with your parents, so give your best estimate for what you’ll spend on each item. For example, you’ll need to estimate how much money you’ll spend on groceries, gas, entertainment, and insurance.
How To Account for Living Expenses
Finding an apartment that includes utilities in the rent can simplify your budget. However, this option isn’t always available. If utilities such as gas, electric, and water are not included in the rent, you will need to factor them, along with other common living expenses such as renter’s insurance, into your apartment budget as follows:
Rent
This amount should stay the same each month for the duration of your rental contract unless you get a monthly rental agreement, which is not binding but also doesn’t prevent rent increases. In addition, most rental agreements require at least one to two months of a security deposit, so be sure to account for that, as well.
Electric
Tenants typically pay for this utility. Because you’re in an apartment, your electricity bill should be fairly small each month. If you miss any payments, the utility company can turn off your electricity until all fees have been paid.
Natural Gas
Gas is often paid for by the landlord and is not typically expensive. However, if you are responsible for this utility, make sure you are able to make the monthly payments, as the utility company can easily turn off your heat and hot water for the money owed.
Water
Landlords also often pay your water bill. However, in certain cases, you may need to pay for this utility, and you want to be sure you can make the monthly payments.
Internet and Cable
You’ll be responsible for this charge, and you may be able to get a bundled service from your cable or cellphone provider at a lower rate. Depending on your apartment complex, you may have to pay an installation fee. Make sure to inquire about this fee when shopping for a provider. In addition, cable may be optional if you don’t watch much television. Consider streaming services as a cheaper option if you don’t watch cable channels often.
Miscellaneous Fees
Also, be aware of these common fees that many apartment complexes and landlords charge:
Pet feesGarbage pickupPest controlParkingStorage/garageAdministration fees
Not all apartments come with these fees. However, it’s a good rule to ask if they do. Some fees may occur on a monthly basis, while others may be a one-time charge. You might find you can afford the monthly rent without an issue, but the upfront costs to move, such as security deposits, renter’s insurance, and administration fees, seem overwhelming. To get a realistic picture of what you can actually afford and to avoid any surprise charges, you should also include these expenses in your budget.
Security Deposits
In addition to paying the first month’s rent, you will likely need to pay a minimum of one month’s rent as a security deposit. If you use a broker, you might have to pay them another month’s rent as a fee. For example, if you rent an apartment that costs $1,000 per month and you use a broker, you would have to pay $3,000 upfront. Even without a broker, you would need to pay $2,000 upon moving into your apartment. Some places may give you a break on the security deposit. Instead of a traditional deposit where you get your deposit back as long as there’s no damage, you might be able to make a non-refundable deposit for a much smaller amount, like $175. If there are damages to the apartment that exceed that amount, you may be on the hook for those at the end of your lease. If you agree to this non-refundable option, make sure you save a little money each month in case you are charged an additional fee at the end of your lease.
Renter’s Insurance
This covers all your belongings in your apartment in case of theft or certain types of damage. Renter’s insurance is usually fairly low-cost. You can cut the cost even more by bundling this insurance with your car insurance coverage if you have a vehicle. You may also be able to get multiple quotes for renter’s insurance to compare costs. Many management companies require that you have proof of insurance before you move, and it’s a good idea to insure your belongings regardless. Renter’s insurance is usually $10 to $20 a month, depending on the area you live in and your type of apartment. If you have a car, ask your car insurer if they offer this coverage, as you might get a bundle discount.
Utility Deposits
Some landlords require that utilities be in the tenant’s name. Therefore, you may have to pay a deposit for service, especially if this is your first time paying utilities. Deposits can range from $70 to $150, but as long as you pay your utilities on time, you should receive a refund when you move out. You may have to wait a few months to a year. If you continue service with these utility companies elsewhere, you can expect to receive a credit on your statement instead of a refund payment.
Administration Fees
If you want to apply for an apartment, the management company will likely need to run your credit and conduct a background check before it’s time for you to move in. You typically have to pay an administration fee for this service of about $100, although some companies will waive the fee if they’re offering a special.
How To Keep Apartment Costs Down
If the rent for the apartment you want is too expensive, look at some factors that could affect your costs:
Living in a studio or a basement apartment is typically cheaper than living in a one- or two-bedroom apartment.Living near a city center is going to cost more than living on the outskirts or suburbs of the city.Living far away from your place of work or social life might be less expensive, but it could leave you with high transportation costs.
Weigh the pros and cons of location and housing to determine an acceptable situation that can accommodate your budget and offer the quality of life you want. For example, living near your job or in the city could be a strategic decision if you can give up your car and all its expenses.
How Much Rent Should You Pay?
There’s a good rule for rent that states your monthly rent shouldn’t be more than one-third of your monthly income, and many apartment complexes and landlords follow this rule. For example, if you earn $3,000 a month, you should be able to qualify for an apartment that costs $1,000 a month. The reasoning behind this rule of thumb is that by capping your rent payment at 30% of your monthly income, you’ll still have plenty of money left to cover other living expenses and to work toward your financial goals.
The Bottom Line
Consider your options and take all of the fees into consideration when choosing an apartment. The location and style of the apartment you are interested in will vary, so it’s important to note all the fees when making comparisons. For example, one apartment may have a lower base rent but higher monthly fees, making it less of a deal. Run all the numbers, ask questions, and start saving month-by-month for those initial move-in costs. If you do, you’ll be ready to move before you know it.
