How to budget for an apartment

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(Last Updated On: April 1, 2019)

 

how-to-save-for-an-apartment

When you’re ready to move out on your own, deciding how you’re going to afford it can feel like an unmanageable task. But with a little bit of planning, you can budget for an apartment of your own. In this post, we break down the things you need to think about to get your first (or next) place. Let’s dive in!

Step #1: Understand all of the upfront costs

The upfront costs are the costs you need to factor into your budget well before an apartment to make the whole thing happen. Its costs like the security deposit, application fees, and moving fees that you need to think about.

What to expect for security costs

Security deposits at property management companies can be significantly lower than an independent landlord. Sometimes property management companies will have zero security deposit deals or a security deposit that’s a fraction the cost of the actual rent.

Landlords renting out a house or a unit in a multi-family home will likely have a security deposit that’s the first month and last month’s rent. This security deposit is to cover them if you don’t make a payment.

Large property management companies renting out many apartments can deal with the risk of missing out on a few months of rental income where a smaller landlord is going to want that cushion for unpaid rent or damages.

What to expect for application fees

You may or may not be required to turn in an application fee to rent a place. The application fee can cover processing and the credit check needed to approve you. According to Apartmentguide, you can expect to pay as much as $100 for application related fees.

What to expect for moving costs

Moving costs will vary depending on how far you’re moving and how you’re moving.

Hiring professional moves can cost a few thousand dollars. Moving yourself with a truck can cost a few hundred dollars. Get quotes from movers and get quotes from moving truck companies to see what’s the most affordable option.

Don’t let these costs discourage you. It’s possible to save up and cover each one.

Step #2: Decide how much you can spend on rent each month

With an awareness of some of the costs involved, it’s time to decide how much you have to spend on all of it. The general rule of thumb is that housing shouldn’t take up more than 30% of your gross income. This is income before taxes are deducted.

So if you make $50,000 per year, you should be spending no more than $15,000 per year on housing or $1,250 per month. Landlords typically have a rule that you need to make at least three times the rent per month to qualify for a lease as well.

The 30% rule is the absolute maximum. Spending a lower percentage on housing can free up some cash for your other goals. You may have monthly expenses in other areas like childcare that means you should spend less on your rental.

Decide on how much you’re willing to spend on rent per month taking into account the 30% rule and your monthly household expenses.

Step #3: Develop your savings plan based on your rental budget

After deciding the amount you’re willing to spend per month on rent, work backwards to figure out how much you need to save up in total for your move.

Remember — you may need as much as first month and last month’s rent for your security deposit. If your rental budget is $1,250, for instance, you’ll need $2,500 upfront.

Then add in the potential application fees ($100ish) and moving fees (let’s say $500 for this example). The minimum you need to save up for your move is $3,100.

You may want to tack on a few extra hundred dollars for furniture, home goods like paper towels and soap, and costs to set up utilities.

Now that you have a number in mind of what you need to move, let’s move on to the next step — how to save.

Step #4: Create your budget and saving plan

The work before this is important.

You need to have a goal that you’re working towards. Saying randomly that you want to save up to move out is a great idea. But if you don’t know how much you need and you don’t have a strategic plan to put in motion, your goal will likely not come to fruition.

The best way to save up for something is incrementally over time so divide your goal by the number of weeks or months you’re giving yourself to move out.

Open up a savings account specifically for your moving fund. Many banks will let you assign a nickname to your savings account. Call it “moving fund.” This way you know exactly what the money is for.

Then commit to putting money away weekly or monthly until you have the money you need to pack up and move into your apartment. Tax season is also here. Dedicate all cash windfalls you receive like a tax refund, bonus, or commission to your moving out fund.

You should also come up with a budget so you have a plan for what you’ll be doing with your money in all areas of life. Having a plan for your money will help you stop spending on things that aren’t as important to you.

Budgeting is all about choosing your priorities and putting your money in the right places. If you don’t care that much about takeout, happy hour, or shoes, budgeting gives you the opportunity to reallocate money from excess spending to the savings fund for your new apartment.

Final word

Budgeting for an apartment takes time but it is doable. First, get a deep understanding of all the upfront costs involved. These upfront costs are the ones that usually give people sticker shock when they start apartment hunting.

Then decide how much you can afford to spend each month. Choose your savings goal and come up with an amount that you’ll save each month towards the goal.

Do these steps and you’ll have your own apartment in no time!

 

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