You found your first place, have the deposit money set aside and are ready to write the check to the property manager. But can you afford this apartment? Do you know what expenses are associated with an apartment besides the rent, and do you know what the rent includes? A budget can help you figure all of these things out and more.
A budget is necessary so you live within your means, stay on track with your finances, don’t get in debt and never have to worry about losing that wonderful apartment. If you have a checking account, calculator, piece of paper and pencil, you have all you need to create a budget for your first place.
Or, you could use a spreadsheet software or a free online program such as Mint.com, which budgets everything for you. How often you adjust that budget is up to you – some make a plan for an entire year at a time, and others vary their spending month-to-month. It’s best to periodically evaluate it so you are prepared for the next few months, as your spending may fluctuate at different times of the year.
Making a budget: First steps
Now it’s time to get started on your plan, which includes assessing how much income you have to spend, determining how much you’re spending and deciding if you need to cut back.
First, gather all of your financial documents, including checking account statements for the past three months, receipts, and bills, such as credit card or car payment statements. From these documents, calculate your income from all sources and make a list of your debts, adding anything or anyone to the list that you regularly pay with cash.
Prioritize where you spend money
Next, decide what you have to pay to survive. These payments due every month include rent, groceries, gas, credit card payments, electricity, and car payments and/or maintenance. Add all these up, and subtract this amount from your monthly income.
Some of these payments, such as electricity and gas, vary from month-to-month. Call the electricity or gas companies you will be using, and ask them what the average cost has been for that address, ask your potential new neighbors what they’re paying or find out from your property manager what the average monthly cost is.
- Learn more: Top Budgeting Resources for 20-Somethings
Decide how much you need to save each month to meet long-term savings goals. For most people, it’s 10 percent of your income, but if you can only do 5 percent, that’s fine if you’re young – just make sure you save more later. Set the money aside in a savings account after your mandatory bills are paid, and do it consistently.
Finally, save some for a rainy day
Then make a list of your non-essentials expenditures, such as dining out, going to the movies, hobbies, traveling, gifts, clothes you don’t really need, etc. Prioritize these items, and decide what can be cut if it’s necessary. Most experts recommend setting aside 10 to 15 percent as fun money to be used for these indulgences, but if you have debt to pay, you may want to cut back even more.
- Read more: Renting is the Affordable Alternative
Now that you’ve established your budget, check your spending against your income every time you get paid to stay on track. Keep in mind that the benefits of budgeting are long-term. So, the longer you buckle down, the more you’ll save, and over your lifetime, you’ll probably save tens of thousands of dollars.
Photo credit: Shutterstock / Dmitriy Karelin