Pro-Tip: Rent Budgeting for Young Adults
You’ve done it! You’ve moved out of your parents’ house, just graduated college, have your first full-time job and secured a great new apartment. You’re on a roll! We’re here to help you keep rolling and set you up for success.
Before you get caught up in the day-to-day of your new life, creating a budget is a crucial step in helping you understand how much will be going out each month and what is left over. The formula is pretty straight forward – identify all of your monthly expenses (including money you might want to set aside for savings), figure out your monthly income and calculate what’s left.
Rent will be your largest monthly expense and most rental agreements are for twelve months, so you’ll need to ensure you’ve got that covered for the year, as defaulting and having to move can be costly. To help you understand what you can afford, a good rule of thumb is to spend no more than 25-30% of your monthly income.
Also important in determining an appropriate amount is a good understanding of what you’ll be spending each month on common apartment-related expenses, such as electricity, gas, water, internet, cable, renter’s insurance, pet fees, parking and storage. The next step is to understand all of the rest of your living expenses, such as groceries, gas, health and car insurance, debt, clothing, entertainment, etc.
There are plenty of tools and strategies out there to help you understand your expenses. Here are a few that we recommend:
- Pay rent and other expenses with ACH (automated clearing house), automatic debit or Pay with RadPad in order to easily view where your money is going each month on your bank statement.
- Use a budgeting app, such as Mint, that links to your accounts and automatically funnels each expense into its appropriate category. Keep in mind, however, that there will be some expenses from time to time that are not recognized by the app, so manual categorization is still necessary.
- If you use cash regularly, save your receipts and manually add these to your calculations.
- Create a system for storing receipts and bills (for at least a year at a time) so you can address discrepancies.
- Build in a cushion to your budget, so that if an expense spikes in any given month, you’re able to cover it.
- Set aside a regular percentage of your income in a separate savings or money market account (and, it’s never too early to open a retirement savings account) for emergencies and to begin building a nest egg.
For someone new to tracking expenses, this process could seem overwhelming. Rest assured, once a system is put in place, you establish a rhythm and you are accurately predicting available funds, taking care of your bills can almost go on auto-pilot and you’ll have a better handle on just what your financial life looks like.