Financial responsibilities comprise one of the many issues young people have to deal with once they complete their education. Renting an apartment requires mental, physical, and financial preparation.
Creating a rent budget might be a tricky task, especially for those individuals new to managing money. The process might feel overwhelming for young individuals who have got their first full-time job or just graduated from college.
There are several steps you may follow when budgeting for your first apartment. It is important to consider these tips before getting your first apartment.
What to Look for When Touring New Apartments
Finding a new apartment may be an overwhelming task. It would be best to prepare a rental checklist to help you narrow down on options that fit your plan.
The safety of an apartment must be a key consideration when choosing an apartment. It includes the presence of fire extinguishers, windows, secure locks, good lighting, neighborhood security, and functional smoke detectors.
The apartment’s condition and availability of amenities are as necessary as counting the number of rooms and bedrooms when searching for a rental.
Other factors include the apartment’s location and its proximity to your workplace, grocery store, hospital, and gas stations. You can use renter applications like Zillow, Nextdoor, and SpareRoom USA to find apartments that match your budget.
Importance of Budgeting for Your First Apartment
Different places have different renting rates. With this in mind, rent might end up being more expensive than expected. It is therefore important to draw your finances well and lower the expenses.
In addition, young adults budgeting for their first apartment need to know that their salaries might not cater to their needs as anticipated.
Drawing a proper plan will ensure spending is within expected limits and there is money aside for other activities. Lack of a plan might result in financial issues, late fees, and eviction. This can negatively affect the credit score and, in some instances, create legal consequences.
How to Budget
The first step of budgeting for your first apartment is figuring out your monthly income. The second step is to calculate the anticipated monthly expenses and subtract it from the monthly payment. A small buffer is added to the previous result to get the estimated living expenses.
Budgets are flexible and subject to change. You can change the budget to fit your lifestyle and actual living expenses. Budgets are created from current spending and income patterns.
How to Account for Living Expenses
Apartments with rent rates that include utilities can simplify budgeting for your first apartment. This option, however, is not available for all apartments.
Suppose utilities like electric, water, and gas bills are not included in the rent. In that case, you have to factor them in with other living expenses in your budget.
You should budget for at least $200 for the monthly utilities. Living expenses include renter’s insurance and application fee.
Tenants are advised to watch out for hidden fees and bills when budgeting for their first apartment. These expenses include parking, storage, garage, administration, garbage pickup, and pest control. Such costs may be categorized into one time fees and monthly fees.
The rent fee is expected to remain the same for the stipulated period on the rental contract. However, this amount may differ when you sign a monthly rental agreement. This is because monthly rental agreements are not legally binding, which allows the property manager to increase the rent.
In addition, you should account for a security deposit in your budgeting for your first apartment. This is because it is a requirement for most rental agreements.
Tenants usually take care of their electric utility bills. Since you are living in an apartment, the electricity bill should be small when you pay monthly. Missing payments may prompt the utility company to disconnect power to your apartment until all the bills are paid.
It is important to ensure that the utilities are under your name. In addition, you may adopt measures that save on electricity and minimize wastage. Experts advise tenants to save extra cash for seasons that would require more electricity, such as summer and winter.
Natural Gas and Water
Every tenant must establish who pays for the different utilities in a new apartment. The property manager often pays for natural gas, but the tenant might be responsible for this bill in some cases.
If the utility bill is under your name, be sure to include it in the monthly budget. Failure to pay the utility bill can prompt the utility company to cut off services to your apartment.
Property managers are usually responsible for water bills in many states. However, in some cases, the tenant may be required to pay for the water bills. In this case, you must include monthly water bills in your budget to avoid any surprises.
Public Transport and Groceries
Tenants that do not have a vehicle must include transportation costs in their budget. In major cities, public transport may cost $80 to$120 a month. In addition, consider food costs and groceries in the budget.
According to the United States Department of Agriculture, the average monthly cost for groceries ranges from $200 to $250
Internet and Cable
Tenants are typically responsible for the internet and cable fees unless the apartment complex exclusively goes through a specific internet service provider.
When budgeting for your first apartment, internet and cable are important utilities to consider in your monthly expenses. You may get an affordable bundled service from your cell phone or cable provider.
The apartment complex you choose might determine if you pay an installation fee or not. It is important to inquire about an installation fee when searching for a provider.
If you do not spend so much time on the television, consider choosing streaming services over cable. Streaming services are usually cheaper than cable.
Renter’s insurance is designed to cover the tenant’s belongings in case of a burglary, theft, or damage to property. It is available at a fair price.
Insurance experts advise tenants to bundle their car insurance with renter insurance to reduce the overall cost of coverage.
Most property managers and management companies require tenants to show proof of renters insurance before moving into an apartment. The renter’s insurance depends on the location and type of apartment.
It varies from place to place but is usually charged monthly at $10 to $20. You can get a discount when you get your car and renters insurance under one coverage.
When budgeting for your first apartment, considering upfront cost is important. You might afford the rent, but the upfront cost required when moving into a new apartment might be overwhelming.
Accounting for upfront fees like security deposits helps in drafting a realistic budget that avoids surprise charges.
Apart from paying the first month’s rent, tenants must pay an additional one month’s rent as well as the security deposit. This expense needs to be incorporated into the budget. In addition, you may be requested to pay one month’s rent upfront.
Other property managers may require you to pay a deposit initially but return it as long as the apartment has no damages.
In such a case, you might receive a non-refundable deposit offer that takes a smaller amount like $175 from a $1000 deposit. If the damages surpass the deposit, you might be required to pay at the end of the lease.
Some landlords require that utilities and bills be registered in the tenant’s name when signing the lease. In this case, you must pay any utility deposit applicable to receive services from the utility company. These deposits typically range approximately from $70 to $150.
You might a refund of the utility deposit if you pay the bills on time. However, this refund may take place after months of servicing your bills.
If you move to another location but continue service with the company, you may credit your account.
If you are applying for a residence, the property manager will conduct a background check on you before signing a lease. This process requires the tenant to pay an administration fee.
However, some landlords and company managers may have special offers that waive the administration fee.
How to Reduce Costs
Tenants may consider sharing the apartment by having roommates. Buying furniture at a discount can reduce the cost of furnishing the new apartment.
If cable TV is expensive, opt for affordable streaming services like Hulu and Netflix that can cost as low as $15 a month.
Taking practical steps like winterizing the apartment can help reduce heating and cooling needs.
You can use budgeting applications to keep a record of your expenditure and income.
How Much Should One Pay?
A popular rule of thumb for paying rent states that it should be one-third of your monthly income.
Many landlords, apartment complexes, and property managers observe this rule. For instance, if you earn $6000 monthly, you may only afford an apartment that costs $2000.
Alternatively, housing must not exceed more than 30% of their monthly income. The idea originated from the National Housing Act of 1937, which provided the yardstick for monthly rent.
To allow extra cash for other living expenses, you should keep the monthly rent below 30% of the total monthly income. Such a move will enable you to work to achieve your financial goal.
Another great rule of thumb is to adopt the 50/30/20 rule. It allows you to budget: 50% of your monthly income on fixed expenses, 30% on fun activities like eating and entertainment, and 20% remain as savings. Fixed costs include rent, insurance, debt payments, and utility bills.
It is important to weigh all the options and include utilities into your budget when selecting an apartment.
Apart from considering the style and location of an apartment, it is important to compare fees when deciding where to rent.
Ask questions, start saving early before moving out, and run all the numbers to ensure you are on the right track.