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, maybe you just got your first full-time job, or maybe you have some friends or a significant other willing to split the rent with you.
Whatever the case may be, you feel ready to move out on your own. Until you look at your budget and realize it might not be as easy as you thought.
Why You Should 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” 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 Budget for an Apartment
First of all, you should have a basic budget in place, 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:
If this is your first time fully living on your own, without any financial help, then 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!
Remember — 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. For now, you want a rough outline of what you can expect to spend so that you know how much you can afford to pay in rent.
Not sure where to start? Here are a few living expenses you'll need to include in your budget.
Living Expenses You Need to Account For
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 budget:
- Rent (of course)
- Renter’s insurance
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 complexes will come with these fees, but since they tend to be in the 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 may 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.
Security Deposit: 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, though. 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.
Pet Deposit: 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.
Renter's Insurance: 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.
Utility Deposits: 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.
Administration Fees: 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.
When dealing with a private landlord, administration fees may be less, or you may not have to pay them.
How Much Rent Can You Afford to Pay?
After reviewing all of those potential expenses, you may be wondering if you can afford to move out at all.
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 income should be around 3x your monthly rent, and many apartment complexes (and landlords) follow this rule.
So for example, if you’re looking at an apartment that costs $1,000 per month, you’ll need to earn at least $3,000 per month to qualify for it.
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 instead.
These are rules of thumb, though. They’re meant to be useful guidelines, not hard-and-fast-rules that need to be followed to a T.
When determining how much rent you can afford, your best bet is to follow the steps above. Create your base budget, and then see how your estimated living expenses fit into it.
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, do a quick search on a site like Craigslist or Apartment Finder and see how much apartments are going for. You'll spot a range for one-bedrooms, two-bedrooms, and studios.
You’ll find that the closer a place is to a city center, the more expensive it will be (and it will likely be smaller), so choose your location wisely.
The absolute worst thing you can do is try and rent a place that’s out of your price range. If you only have $1,200 left after all is said and done, and your rent is $1,100, you’ll have to make sure your utilities don’t exceed $100, which might be rough. Wouldn’t you rather rent a place where you don’t need to worry about living paycheck-to-paycheck?
How to Save Money on Your Living Situation 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.
First, reconsider where you want to live, 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. Likewise, 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 be more money than living on the outskirts of the city, but living in the middle of nowhere might leave you with high transportation costs.
Think of these factors as puzzle pieces and try to figure out what you can move 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.
Just be sure to 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.