Before signing an apartment lease, it is wise to establish a budget, so you aren’t caught by surprise when moving day approaches. Setting an apartment budget is not a difficult task as long as you are able to clearly account for your monthly income and expenditure.
Income vs. expenses
Start by calculating your net income. In other words, what is your take-home pay every month? Do you have alternate sources of income? Be sure to include bonuses, dividends, interest and any other income you have.
Next, take a look at your monthly expenses. A monthly bank statement or your online bank account will give you a clear idea of all your spending.
Create categories for the expenses, e.g. credit card, phone, groceries, car insurance. Make sure every expense is categorized clearly. This can be done easily with Mint.com. They do all of the hard work for you and it’s completely free. If you use cash to make payments, be sure to log every penny you spend in a notebook or on your phone. The important thing here is to keep track of all spending, so you have a true idea of actual monthly expenses – cash, check or credit.
This is also a good time to review what expenses fall under “needs,” and which ones can be termed as “wants.” Any payment or purchase that absolutely must be made (e.g. utility bills, car insurance, medicines) is a need, while other purchases that may be skipped (e.g. new clothes, vacation) could be a want. Think about trimming the list of “wants,” at least until you have settled into your new apartment. Your budget will thank you.
A general rule of thumb is that you should spend no more than 30 percent of your total gross income on rent. If you make $3,000 per month before taxes, your rent should be no higher than $900. Another guideline stipulates that you can use up to 50 percent of your take-home pay for housing, utilities, groceries, transportation and other expenses that typically cost the same every month. Take-home pay depends on things like taxes, health insurance and other money that comes out of your paycheck, so it will vary widely by individual.
Many landlords require that you have an annual income that is roughly 40 times the monthly rent amount. Again using our example of $3,000 per month in income, your annual salary would be $36,000, which divided by 40 is $900. Property managers may also ask you to pay upfront first and last month’s rent, plus a security deposit. Security deposits and move-in fees can range from $50 up to the equivalent of several months rent. If you are unable to meet these requirements, consider looking for other less-priced apartments. Or you can think about splitting the cost with a roommate.
When you move into a new apartment, you will need to set up some or all of your utilities. Creating a new account with utility companies may involve paying a deposit amount that varies based on your credit record and past payment history. This amount will be refunded within a few months, as long you pay the bills on time. In case of cable/Internet, you may need to pay installation charges for setting up services. To find out how much utilities cost on an average per month, ask potential neighbors. You can also get estimates from the utility company that provides service in the area. Get an estimate amount that you can work into your budget.
Find out if you are required to buy renter’s insurance as part of the lease agreement. If yes, get multiple quotes and compare them across apartments as you work on the budget. Other expenses could include parking, pet deposit, garage fees, etc. Some of these may be charged monthly, while some others may be a one-time charge.
Are you going to hire a moving company? Do you need to buy any furniture and/or household appliances prior to moving in? Make sure you have budgeted for all the little expenses that can crop up during moving.
Finally, keep aside some funds for emergency expenses. Consider this as your rainy day fund that you can dip into when you run into an unexpected situation and need cash on hand.
Ready to move?
You have found an apartment that fits within your budget, and gives you a bit of wiggle space for fun too. Now you can get moving! Stick to your budget, take help from family and friends, and enjoy your new space.