How to Tell If You Are Ready to Move Out
Use this checklist to determine whether moving out is in your future
If you moved back home after college graduation or lived at home while attending school, you may be wondering how much you need to save before you can move out and enjoy the independence of adulthood.
But if you move out before you are in a position to support yourself, you may not have what it takes to succeed financially and could wind up back at home. To avoid this boomerang effect, ensure that you meet these financial criteria before moving out.
You Can Cover Your Bills
Before deciding how to move out, ensure that you can afford to live on your own. Create a detailed monthly budget, which is a plan for how to spend money. Start by writing down what you spend and what you earn in a month. As you build this spending plan, include any extra expenses that you may incur when you move out. These include items such as utilities, transportation costs, food, and rent. In addition, if you've been living at home, you may have been spending a larger portion of your salary on entertainment or other non-essentials. Once you move out on your own, you may have to cut back in this area.
Next, subtract your expenses from your income. If the number is negative, you aren't yet covering your bills and need to earn more or spend less to live within your means. If the number is positive, come up with a plan for how to spend the leftover money.
Before moving out, live on the budget you establish over the next few months as if you were already living alone. Likewise, put any extra money into an emergency fund. This test will indicate whether you are able to afford to live on your own and will prepare you for a much smoother transition into solo living.
You Have Your Debts Under Control
How much debt you have can also influence your ability to move out. Your debt-to-income ratio measures the amount you owe each month for credit card payments, auto loans, and other loans relative to the total amount that you earn. A debt-to-income ratio of below 36% is considered to be favorable in the eyes of lenders, but the lower the ratio, the better the handle you have over your debt.
If your debt-to-income ratio substantially exceeds the ideal figure, you may not want to move out yet because you may want to use leftover money from your budget to pay down debt rather than pay for a place of your own and the associated expenses. If this describes your financial situation, and you work near your parents and get along with them, you may want to continue living with them temporarily so that you can pay down your debt more quickly.
If, however, you have manageable debt, you may be able to aggressively pay down your debt and move out quickly. For this to be a good option, you need to have a debt repayment plan and make sacrifices so that the majority of your money is directed toward your debt. If you're not sure which debts to tackle first, start with high-interest debt, then debt with the lowest balance, and finally any debts that have been turned over to collections.
Once your debt repayment plan is underway, establish two target dates: one for completing your debt obligation and the other for moving out. Discuss this plan with your parents beforehand.
You Have an Emergency Fund
A crucial step in moving out wisely and securely is building an emergency fund—a pool of money you can tap into to pay for surprise expenses so that you don't have to take out a loan or dip into retirement savings.
Start small, with $1,000 to $2,000 in your emergency fund. You should eventually save an amount equivalent to three to six months of living expenses before moving out so you can handle unanticipated expenses, such as medical bills, insurance deductibles, and vacations. With a stable job and commitment to a monthly budget, you can tuck away a good-sized emergency fund fairly quickly.
You Have Enough Income to Pay Rent
A criterion that landlords often use to screen tenants is the three-to-one income-to-rent ratio. That is, it's desirable to have a monthly income that is equal to three times the monthly cost of your rent.
This is a useful rule of thumb to gauge your own ability to afford a rental of your own. If the rental you have your eye on costs $1,000 per month, you should have at least $3,000 in monthly income to comfortably pay that rent without overstretching your finances. If you don't have the funds to pay for rent, you may have to downsize to a smaller property or postpone moving out until you are earning enough to be able to afford the rent.
You Get Roommates
Although a roommate isn't a required step for moving out, getting one is a great way to save on rent because you can split a higher rent among the roommates. Roommates may even allow you to move into a larger place than you can afford on your own. Your ability to move may ultimately hinge on your ability to secure affordable rent, so give the idea of roommates some serious thought.
Choose your roommates carefully, however; pick people who have similar lifestyles as you if possible. Likewise, put your individual financial obligations down on paper, as friendships can otherwise deteriorate quickly in difficult living situations. Additionally, protect yourself against identity theft by securing your personal information in a place that cannot be found or accessed. If possible, sign separate leases with your landlord so that you are not held responsible if your roommates skip out on the rent or other bills.
You Have Money for Rental Fees and Deposits
When you rent your own apartment or house, you will generally need money to pay for a security deposit, your first and potentially last month’s rent, rental application fees, and a credit or background check. Additionally, have money for utility deposits or hook-up fees for utilities such as electricity, water, and cable.
To ensure a smooth transition to your next home, save enough money to cover these bills. Likewise, have enough money set aside for moving costs. Not having enough to cover these essential moving expenses can throw a wrench in your plan for how to move out.
You Can Afford Renter's Insurance
When you live alone for the first time, it's easy to think that you are invincible. However, unforeseen disasters can occur even if you're a diligent renter. Renter's insurance can give you peace of mind and help you repair or replace your possessions in the event of unforeseen situations. Renter's insurance is a special type of insurance policy that protects your property against losses or damage stemming from covered perils including fires, storms, or theft.
Although the insurance may seem like an unnecessary expense, it's usually affordable—around $20 per month—and can save you a lot of money compared to paying out of pocket for damages after a disaster. If you can't afford renter's insurance now, you may want to think about waiting to move out until you have saved up enough to pay for renter's insurance premiums. Worth noting: Rental insurance premiums are based on such factors as where you live, how much you choose to insure, and your deductible.
You Are Willing to Stay a Year
Apartment leases commonly last one year or longer, so be prepared to make a commitment to move in and stay in your new place for at least that long. If you don't think that you can afford to live in the rental for that long, build up the necessary financial cushion to afford a one-year rental or be willing to find a short-term or month-to-month lease.
Moving out too early can result in breaking your lease, which may force you to pay the balance of the lease. The unpaid amount may even be sent over to collections, which could hurt your credit score and your future ability to buy a house.
You Are Willing to Buy Secondhand Furniture
Waiting until you have saved enough for that designer dining set or leather sofa may deter you from moving out on your preferred timeline. Instead, when you first move out, have just enough saved up to furnish your apartment with used items from family or thrift stores. Once you save some cash, you can use it to add newer or more high-end items to your apartment to create a more welcoming space.
Making the frugal choice now will help you to afford a nicer home in the future because it will help you avoid debt. When it's time to go furniture shopping, take the time to hunt for deals. You can work on designing the home you want over a period of years with careful planning and saving; it doesn't have to happen overnight.
You Are Prepared to Protect Your Credit Score
Many young adults damage their credit when they first move out. If you make payments over 30 days late or fail to pay your utilities on time and have them turned over to a collection agency or charged off, you can hurt your credit.
If you're not prepared to maintain the sound money-management habits needed to maintain a healthy credit score, you may not be financially responsible enough to move out yet. In contrast, if you are willing to pay all of your bills on time, you will eventually have the stellar credit score needed to qualify for a good loan when you decide to buy a home of your own.
Moving out for the first time involves careful planning to ensure that you are able to fully support yourself. You should determine a solid budget based on a thorough and realistic view of your expenses, as well as build an emergency fund for unanticipated events. A well-conceived plan for how to move out can ensure that you pack up in due course and live comfortably on your own.
The habits you form when you first move out will follow you throughout your adult life. Be responsible and pay your bills on time, and you should be able to manage your finances effectively.