As a first-time renter, there are many costs you need to learn about and keep track of. Plus, college is the perfect opportunity to become aware of your spending, monitor your income and be more financially literate overall. The first step is to understand certain key aspects of managing your budget and planning for your expenses — which is where we come in to help you out.
There are many questions to ask yourself when you begin your journey as a renter. For instance, you need to decide where you want to rent and what type of apartment you’re interested in; whether you want to have roommates or rent on your own; what essentials you need to take with you; and so on. Therefore, a college renting guide covering all of these aspects and more is the perfect launching point for your research.
Next, give some more thought to your budget and finances. To help you understand what you need to do to craft your budget, below are some considerations regarding the financial part of renting and the renter lifestyle.
Necessities: Housing, Utilities & Food
First, know that there will be certain expenses that you need to cover each month and that cannot be skipped. Specifically, the largest portion of your income will likely go toward housing, namely your rent. In this area, try to stay below 30% of your income, which — depending on where you live — means you may need to split the rent with roommates or make sacrifices on location and/or size. Therefore, be sure to research the market you’re moving to in order to understand the range that’s acceptable for you. You can also use a tool such as a rent affordability calculator to determine what you can and cannot afford.
Then, after budgeting for your rent, determine how much you should expect to pay on utilities. These bills may vary significantly depending on where you live, how much you consume and whether some of the costs are included in the rent. So, as you’re browsing apartments, ask your potential landlord or neighbors how much utilities cost on average. Doing so will help you figure out how much of your income you should dedicate to utilities.
Additionally, the cost of food should also be included in your necessities. Fortunately, this is one aspect where you have a lot of control. So, if you want to save money and live more frugally, then how you shop for food and how you eat will be important areas to control. For example, buying in bulk and prepping your meals ahead of time is one way to save a considerable amount money. Granted, this doesn’t mean that you’ll never eat out or order in. Rather, the important takeaway here is to reduce the number of times you do that and increase the days in which you cook at home and prep your own meals.
Budgeting Your “Wants”
Ideally, all three of the necessary costs above should total less than 50% of your income. If they go above this threshold, you might have to sacrifice in other areas in order to cover them. Then, the rest of your income should be divided as such: 30% toward “wants” and 20% directly into savings. Your “wants” include things like entertainment, shopping and going out — essentially, anything that you want to spend money on, but that you don’t actually have to. These costs can be reduced according to your lifestyle, but this ratio is recommended by experts for a balanced lifestyle.
Saving & Investing
The remaining 20% should go directly into savings or redirected toward investments. Ideally, you should also have an emergency fund in case something happens, which should cover a few months’ worth of your necessities. After that, decide what you want to do with this amount every month. A savings account may not be best if the interest rate is too low. In that case, invest in a Roth IRA, a different retirement plan or index funds. It really depends on how you want to spend this money. If you’re interested in learning more about it, research investing basics and the various opportunities associated with it.
These are just some of the fundamentals about budgeting and saving. The 50-30-20 rule, in particular, is common because it’s relatively easy to implement and follow, as well as very easy to understand. However, if you find it hard to start budgeting, simply keep track of your expenses for two months and try to understand where your money is going in the first place. Then, it will be easier to categorize and divide your income according to this rule, as well as cut spending in different categories to balance out the costs and even save some money.