How to budget for your first apartment?

First Apartment

Affordability calculators often use it as a default assumption to determine to budget for your first apartment?

Mortgage lenders have adopted it as a qualification ratio when approving you for a loan, and private landlords often require tenants’ annual salaries to be at least three times the monthly rent.

How Much Rent Should You Pay?

House Hack #1: Sharing an apartment with roommates can help bring down the monthly rent costs per person. If you can find one or more roommates to comfortably share an apartment with, you immediately save a bit on your rent.

Add a roommate. Splitting rent with a roommate can be one of the most dramatic ways to cut down on your living expenses. But be sure to get permission from your landlord to add someone to the lease. Landlords typically like to screen tenants, and they often charge more rent for each additional roommate. Even so, splitting the new total with another person could save you a lot of money

To find your gross monthly income, take a look at your most recent paycheck and find the line calling out “Gross Pay” (what you’re paid before taxes, health insurance, 401k, and any other benefits are removed from your pay).

Here are steps to help you determine how much to spend on your first apartment.

Related: Cut Expenses and Reduce Debt

Determine Your Current Monthly Expenses

Once you’ve determined how much rent you can afford, you can explore apartment hunting sites to help you find local rentals near you.

Look at your cash flow and liquidity, to calculate whether you have enough of an emergency account to cover three to six months’ worth of rent and debt obligations if you were to lose your income. 

The math may be trickier, but you’ll have a much clearer sense of how much rent you can comfortably afford.

Before you start scanning Craigslist and Zillow for rental options, determine how much you can truly afford to pay for rent. 

Here are a few ways to figure that out. How much should you spend on rent? 

What you can afford depends on income and other expenses, like student loan payments and groceries.

Also consider: Natural Gas is often paid for by the landlord and is not typically expensive. But you want to be sure you can make the monthly payments.

First Apartment: Budgeting Rule

Try the 30% rule One popular rule of thumb is the 30% rule, which says to spend around 30% of your gross income on rent. 

So if you earn $2,800 per month before taxes, you should spend about $840 per month on rent. This is a solid guideline, but it’s not one-size-fits-all advice.

30 Rule

Be strategic about housing. 

The biggest part of most people’s budgets is housing. The general rule of thumb is to spend no more than about 30% of your gross income on rent.

Use this as a guide when renting an apartment.

Consider negotiating your rent if the asking price is above 30% of your income.

But many people, particularly if they live in big cities, spend 50%—or more—of their income on rent.

Spending 30% of your income on rent can help you reach a healthy balance between comfort and affordability. 

Monthly Income

It’s a common misconception that one’s monthly income must meet a certain threshold to be approved for a new lease. 

In some cases, you don’t actually need to prove employment to lease an apartment. 

A lack of documented income can make apartment hunting a bit more challenging, but if you know where to look it can work.

Some fees may occur on a monthly basis, while others may be a one-time charge. 

You might find you can pay the monthly rent without an issue, but the upfront costs to move, such as security deposits, renter’s insurance, and administration fees, seem overwhelming. 

What does renter’s insurance cover?

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.

Budget

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.

While budgeting can be an effective way to manage your finances, it only works if you account for all of your monthly expenses.

Fixed Expenses

Utilities, such as electricity, gas, water, and internet, can all add to your monthly expenses. 

So when considering a rental, make sure to ask which utilities are included in the rent and factor in the approximate monthly costs of all the ones that aren’t.

Security Deposit: 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.

Set Financial Goals

Use a Spreadsheet or a Budgeting App to Manage Finances 

Actively tracking your monthly expenses can help you stay within your budget and cut down on costs that make it harder to build an emergency fund. 

A spreadsheet may make more sense if you prefer to track your expenses manually. 

But a budgeting app can streamline the process for you if you prefer a less time-consuming option.

Most are directly linked to your bank accounts and can help you automatically set aside a portion of your income into separate accounts.

Some apps can also point out which subscriptions and other automatic payments you’re spending money on each month and remind you to reevaluate them regularly to see if they’re still necessary. 

The key to successfully budgeting is to create a realistic budget and stick to it. 

Understanding and adhering to a budget can mean the difference between a great apartment renting experience and a terrible one.

Give yourself a small buffer. 

There are a ton of budgeting apps out there that can make the process easy, including Mint.

If you have a clear financial goal in mind—such as saving for a down payment on a house—it makes budgeting easier. 

Whenever you get the urge to spend money on something, picture yourself in your future house (or on a beach vacation—whatever your goal is). 

Seeing another movie in the theater this month might not look so tempting after all. Budgeting tips can help you meet your goals faster.

Pay your savings account first. 

When your paycheck comes in, put money into it first. 

If you wait until the end of the pay period, there’s a good chance there won’t be as much left to save. 

Having a savings account—even if it’s small—does more than just help you reach financial goals. It can save you money.

Once you find the right rent price, you can focus on putting more money in a savings account to meet your long-term goals.

Don’t neglect your savings in order to spend more on rent. 

Future you will thank you for making your emergency fund and retirement savings a priority.

At the same time, you should have money left to keep up with any debt you may have and contribute to your budget.

House Hack #2: Choose a studio apartment instead of a one-bedroom apartment.

Living further from the city center, for example, is often less expensive. 

If you do choose to live in the city center, opt to use public transportation so you can eliminate the added expense of a vehicle and insurance.

Split the rent with a roommate or significant other. 

Look for apartment communities with cost-saving perks, city or occupation discounts, an on-site fitness center (bye, bye expensive membership)

But you could spend hundreds each month on transportation costs to commute to and from work and social engagements.

Figure Out How Much

Consider streaming services as a cheaper option if you don’t watch cable channels often.

Utilities : Heat, water and electricity are needs, but premium cable falls squarely in the “wants” category. 

Scale back your package to shave hundreds off your cable bill. 

Or cut the cord completely and snag a digital antenna on the cheap to access local channels.

Once you’ve determined what your current expenses are, consider what renting-related costs you’ll need to cover.

 Miscellaneous Fees and Non Essentials

 Also, be aware of these common fees that many apartment complexes and landlords charge: 

  • Pet fees
  • Garbage pickup
  • Pest control
  • Parking Storage/garage Administration fees
  • Rental Application Fee

*Navigating the rental application process can be tricky, especially when trying to determine what counts as proof of income and what documents to provide your future landlord.

During the application process, you’ll likely be expected to provide identification, a Social Security number, and pay stubs from your job. 

You may also be asked for a bank statement. 

Since first-time renters typically have sparse credit histories and relatively low income, they may be asked for a referral letter from a family member or employer.

 A co-signer may help alleviate concerns if you can’t provide any of this information, for instance, if you’re a full-time student without regular paychecks from a job.

Apartment Search

Not all apartments come with these fees. 

Maybe you just graduated from college, got your first full-time job, or have some friends you are planning to move in with. 

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.

Factor in those perks when comparing the cost of apartment rentals. An on-site gym, for example, could save you $100 per month or more on a gym membership. 

And in-unit laundry equals savings on time and money versus coin laundry or trips to the laundromat. 

Look For Savings 

If what you can rent doesn’t align with the rental market in your area, look for ways to cut costs elsewhere.

Shopping for a new apartment (or first apartment) can be stressful – finding a good location with public transportation, hoping for the amenities that you want, and striking a deal on a place before anyone else does. 

What are some questions to ask the property manager when looking for your first apartment? 

Depending on the property, you may want to ask about the nearest grocery stores, shopping centers, and other places you’ll regularly visit. 

You may want to ask about available amenities and the noise level in the complex or neighborhood, especially on weekend nights.

This stress can be exacerbated in competitive real estate markets like New York that can cause you to jump on something that may not actually fit your costs.

Tidy up your spending habits If you frequently eat out at restaurants, spend money on entertainment, or travel, consider how these expenses affect your monthly budget. 

If you would rather live in a more spacious apartment or more appealing neighborhood, cutting back on these extras can help you budget your new apartment.

Median Rents

So if you earn $4,500 per month before taxes and save, then you shoot to spend no more than $1,350 per month on rent/apartment. 

But the 30% suggestion has been around since the National Housing Act of 1937. 

That yardstick number doesn’t take into consideration other financial obligations that have come into play since 1937 like increased student debt, car loans, and the rising cost of utilities. 

Nor does it take into account other variables like living in a high-priced rental market. Sticking to spending 30% on rent isn’t necessarily feasible in an area like Washington, D.C.


Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

Free Monthly Budget Planner
Take control of your finances with our Monthly Budget Planner, a free downloadable PDF. This user-friendly tool empowers you to track income, expenses, and savings goals, ensuring you stay on top of your financial game every month.