How to Budget for Your First Apartment
All the Fees and Expenses You Need to Include in Your Budget
Budgeting for your first apartment can be a little tricky, especially if you’re also new to managing your money.
Maybe you just graduated from college, you just got your first full-time job, or you have some friends or a significant other willing to split the rent with you. Whatever the case may be, you might feel prepared to move out on your own. Then you look at your budget, and you realize it might not be as easy as you thought.
Check your credit score before applying for rental apartments. Many landlords will check your score and look for responsible behavior when it comes to paying your bills consistently and on time. New reporting in 2019 means that utility, cable, and cellphone bills in your name may also be reported to credit bureaus to calculate a new variant of your FICO score, which is being developed to help renters who don't yet have much else on their credit report.
Why Budget for Your First Apartment?
Depending on which area of the country you live in, you might find that renting is way 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 extremely important to know how to budget for your first apartment (or living situation). You shouldn’t “wing it” just because worrying about making rent is not something you want to deal with. Having to break a lease because you can’t afford rent can be even more expensive and disastrous. So what can you do to make the process easier? Here's what to expect.
How to Start Your Budget
First of all, create a basic budget, as this will make it easier to fit in your future housing expenses. If you don’t have a budget, now is the perfect time to create one. You can find step-by-step instructions here, but to summarize:
- Figure out your monthly income
- Figure out all of your monthly expenses
- Subtract your expenses from your income to see what’s left
- Give yourself a small buffer, and that’s how much you have to spend on your living expenses
If this is your first time fully living on your own—without any financial help—you might have to adjust your expectations and numbers a few times. You likely didn't have to deal with all of these expenses during college or while living with your parents, so give your best estimate for what you’ll spend on each.
For example, you'll need to estimate how much money you’ll spend on groceries, gas, entertainment, insurance, etc. Welcome to the “adult” world—things just got more expensive.
Budgets aren’t meant to be set in stone. They’re meant to be iterative. You can change your budget to reflect reality better later, once a few months of expenses have passed and you've compared your actual spending to the budget.
Not sure where to start? Here are a few living expenses you'll need to include in your budget once you're in your own apartment.
Account for These Living Expenses
Finding an apartment that has all utilities included makes this part very simple, but this option isn’t always available.
If that’s the case, you’ll want to factor the following common living expenses into your apartment budget:
- Rent: This amount should stay the same each month for the duration of your rental contract unless you get a month-to-month rental agreement, which doesn't lock you in, but also doesn't prevent rent increases.
- Electric: Since you're in an apartment, your electricity bill should be fairly small each month.
- Gas: Gas is often paid by the landlord, and is not typically expensive.
- Water: Landlords often pay your water bill as well, but you may need to pay this in certain cases.
- Internet: You'll be responsible for this charge, and you may be able to get a bundled service from your cable or cell phone provider at a lower rate.
- Cable: Cable may be optional if you don't watch much television.
- Renter’s insurance: This covers all of your belongings in your apartment in case of theft or certain types of damage and is usually fairly low-cost. You can cut the cost even more by bundling this insurance with your car insurance coverage.
Again, you’ll need to estimate all of these, but it shouldn’t be difficult to do. Feel free to ask whoever gives you a tour of the apartment how much tenants pay in utilities (if they’re not included). They should be able to give you a range that you can use to compare across multiple units.
Some places may even offer “packages” where you pay a flat rate for cable and internet, so you don’t have to deal with the actual utility companies.
Additionally, you should be able to get multiple quotes for renter's insurance so you can compare the cost across potential apartments.
Further, you’ll want to watch out for these common fees that many apartment complexes and landlords charge:
- Pet fees (if you own a cat or a dog)
- Garbage pickup
- Pest control
- Administration fees
Not all apartments will come with these fees, but since they tend to be in the rental contract's fine print, it’s helpful to know what to watch out for so you can ask if these fees are charged (before they come as a surprise). Some of these fees could occur on a monthly basis, while others may just be a one-time charge.
Let’s break one-time charges down so you know what you can expect in a standard rental situation.
Budgeting for the Initial Move-In
You might find you can afford the monthly rent without an issue, but the upfront cost to move seems overwhelming.
Many places require that you put one month’s rent down as a security deposit, and if you use a broker, you might have to pay another month’s rent as a fee to them, on top of simply making your first rent payment.
That means if you rent an apartment that costs $1,000 per month, you may have to lay out $3,000 in one go upon moving in (ouch!). Even without a broker, that’s $2,000 you need to pay.
Some places may give you a break on the security deposit, however. Instead of a traditional deposit (where you get your deposit back as long as there’s no damage), you might be offered a non-refundable deposit for a much smaller amount, like $175.
Unfortunately, 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 take this non-refundable option, make sure you save a little each month in case you have to pay extra at the end.
If you want to bring pets with you, you might have to pay a deposit for them as well. This amount is typically much smaller than the monthly rent, but it’s still something you need to budget for.
Many management companies require that you have proof of insurance before you move in, and it's a good idea to insure your belongings regardless. Renter's insurance is usually around $10–$20 per month—depending on where you live and what features your apartment has—and you can ask your car insurer if they offer it. You might get a bundle discount.
Some landlords require that utilities are in your name, and you may have to pay a deposit for service, especially if you’ve never had utilities in your name before. These deposits can range from $70–$150, but as long as you pay your utilities on time, you should receive a refund. You may have to wait a few months to a year, and if you continue service with these utility companies, you can expect to receive a credit on your statement instead.
One other thing to consider with utilities: for Internet and cable (depending on how your apartment complex has things set up), you may have to pay an installation fee. Make sure to inquire about that when shopping around.
Lastly, if you want to apply for an apartment, the management company will need to run your credit and conduct a background check. You typically have to pay an administration fee for this (somewhere around $100), although some companies will waive the fee if they’re offering a special.
How Much Rent Can You Afford?
After reviewing all of those potential expenses, you may be wondering if you can afford to move out at all. But don’t worry. With careful budgeting and planning, you should be prepared to handle all of those one-time expenses. Renting is more affordable after the first few months of living on your own, and if you don’t move out of your place at the end of your lease, you won’t have to worry about any of those one-time fees for another year or so.
So how much rent should you pay? There’s a popular rule-of-thumb 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. So, for example, if you earn $3,000 per month, you can qualify for an apartment that costs $1,000 per month.
There’s another rule-of-thumb that says living expenses shouldn’t exceed around 25 percent of your salary. So if you earn $3,000 per month, you should be looking in the $750 range for rent instead, so that you can cover utilities and still have two-thirds of your monthly income left.
Do you have enough money left over after your other expenses to afford an apartment in your desired area? (Remember, you should include payments toward your debt and savings in your budget.)
To find out average rents, do a quick search on a site like Craigslist or Apartment Finder and see how much apartments are going for in your desired area. You'll spot a range for one-bedrooms, two-bedrooms, and studios.
You’ll find that the closer an apartment is to a city center, the more expensive it will be (and it will likely be smaller), so choose your location wisely. The worst thing you can do is try and rent a place that’s out of your price range.
Keep Costs Down to Make Rent More Affordable
You know how much rent you can afford, and what the going rent is in the area you want to move to. What if the math doesn’t work out as well as you thought it would? There are a few things you can do to save money on your living situation.
Reconsider Where You Want to Live
Consider this both location-wise and housing-wise:
- Living in a studio or a basement apartment is likely cheaper than living in a one- or two-bedroom apartment
- Renting an entire house is going to be more expensive than sharing a room with a few other people
- Living near a city center is going to cost more than living on the outskirts of the city
- Living in the middle of nowhere might leave you with high transportation costs
Consider these factors and figure out what you can change to make your budget work. Living near your job can be the most strategic decision as you can give up your car and save money on gas, insurance, repairs, and possibly parking. In some cases, living in a city might be cheaper for these reasons.
Review Your Monthly Expenses
Think twice about your estimated monthly expenses. Do you need cable? Could you get by with Netflix? Can you shop around for cheaper insurance? Can you cut back on processed foods?
Consider your options and take all of the above fees into consideration when choosing an apartment. Not all places are the same, so it’s extremely important to make a note of fees when making comparisons. One apartment may have lower base rent but have higher monthly fees attached to it, making it less of a deal.
Run all of the numbers, ask questions, and start saving month-by-month for those initial move-in costs. You'll be ready to move out before you know it.