Making your Budget
Once you have your list of desired location and amenities, it is now time to find an apartment based on your budget. If you have not already closely examined and organized your budget, moving can be a good opportunity to apply some basic rules and maximize your paycheck.
Make sure you can live comfortably within your means. Apartment rents are usually your highest expenditure and it’s no use having a great luxury apartment with no furniture. Furthermore, trying to stretch your finances on rent can have devastating consequences, including ruining your finances and forcing you into debt. It will cost more money to break a rental lease that you cannot afford.
Start by making a list of your income and expenses. It is easiest to do this on a monthly basis, since rent, your biggest expense, is on that basis. You can use an excel spreadsheet to make two columns, money coming in and money going out.
Income sources may include:
- After tax salary, wages and tips from your job
- Interest, dividends and capital gains from investments
- Royalties, partnerships, trusts
Be sure to account for taxes, retirement savings and other withheld amounts. Include expendable income only.
Organize your monthly expenses by dividing them into the following categories:
- Mandatory Expenses (fixed and variable)
- Optional Expenses (fixed and variable)
Some expenses will fall into both categories, such as food, recreation, home furnishing, etc, but it should give you an idea of how to can arrange your checkbook to make the most out of your new move.
Look back through your checkbook or credit card statements to identify your regular expenses and identify when and where you tend to spend the most money. Taking a look at ATM cash withdrawals should also give you a good idea of how much you spend on other expenses.
Fixed Expenses are regular payments that you must pay. These include things such as:
- Rent for your new apartment. Your rent should be about 25% of your expendable income
- Utilities and Telephone, cell phone, internet and cable costs
- Car Payments, including insurance and maintenance
- Debt payments (loans, credit cards)
- Medical and Dental insurance and all regular medical costs such as medication, physical therapy
- Savings (how much you put aside for the long term or rainy day fund)
- Renters Insurance, which covers your personal belongings in the event of fire or theft
- Furniture (renting or buying for a new apartment)
- Transportation (gas, bus and train fares, tolls)
- Storage unit rental
- School and child care
- Gym or exercise costs
- Union dues
- Alimony and child support
For most, rent will be the highest expense, usually around 20-30% of income. Other good targets for estimating your expenses are food, (8-15%), health (5-19%), clothing (5%) and entertainment and recreation (5-10%).
These costs are irregular costs, but can still be predicted and should be included in your budget under more precise terms than ‘other’. These costs include:
- Rental deposits (hopefully you can get your deposit back and transfer most of this sum to your new landlord)
- Moving costs
- Entertainment (movies, concerts, nights out)
- Recreation (weekend activities)
- Children’s expenses (toys, cribs, tree houses, parties)
- Legal expenses
- Emergencies (health and family situations, natural disasters, unemployment, etc.)
Once you have your list enumerated and labeled as mandatory and optional, compare your expenses with your income. A good rule is to have your expenses be at least 10% less than your income so you can have some wiggle room.
If your budget does not come out balanced, you are going to reexamine your expenses and figure out where you can make cuts. Take a look at your optional items, (most likely your entertainment and recreation expenses) and stick to your new budget!
Rental Budget Constrained?
When examining your largest expense, rent, you may find that your rental budget is constrained. It is better to find this out before you start looking at apartments than on the first of the month.
Be sure to check to see how much you are going to be expected to pay up front. Some apartments require first and last month’s rent and a security deposit. Make sure that this up front expense won’t leave you in hole. Security deposits can range from $500 to $2000, depending on your market.
Moving Forward with Your Apartment Search
Now that you have all your lists and budget figured out, you can start your apartment search armed with your relevant information. You can begin to peruse listings using internet sites such as MyNewPlace and begin preparing Questions to ask Landlords.