The budgeting side of renting a house or apartment can prove to be a challenge due to the extensive amount of factors that are involved. Ideally, a rental property should be used as a temporary living option for people saving to buy their own property. The key to budgeting is simply finding a balance between what you need covered and what can be considered ‘disposable income’. Here are some tips on finding that ever-so-important balance.
The One-Third Rule
As a rule of thumb, renters should budget one-third of their monthly income, or their gross annual income divided by 40 on a rent payment. For example, individuals making $40,000 annually should allot around $1,000 for their rent payment. This is a good place to start when budgeting, although it can’t be the only thing you take into consideration. This can also be a helpful tip for anything else you are budgeting for, allot a fraction or percentage of your income to whatever you’re trying to save for.
It’s almost impossible to save money if any of it is going to what you don’t absolutely need, whether it be the meal you ate at a restaurant, or those shoes you couldn’t wait until next paycheck to buy. Take the time to make a list of things you need day to day and set aside a fixed amount of money for those things.
Decide what you feel you actually need in your home. If you have a family of 3, 4, or more then you will obviously need more square footage than what a small apartment has to offer, but you may not need that extra half-bathroom. Consider getting an apartment with only one bathroom to save a decent amount. Think about what you need rather than what you want. Understanding the difference between these two things is important. High ceilings and granite counter tops might be aesthetically pleasing, but they can often add a lot of value to the home without a lot of function. This is an area where property managers can jack up the price of rent and make it much more expensive, when you could easily find a similar living space without these luxuries, but similar in functionality to still appease your budget.
Consider Travel Time
Commuting to work or your favorite places should be taken into consideration when searching for a place to live. Bus fees, high gas prices, and wear and tear on your car will slowly chip away at your wallet. Paying extra for a place to live may be a better option than living in a more remote place and dealing with accumulating transportation expenses.
Contemplate things like walking to work or the ability to go home for lunch instead of eating out when deciding how close you want your home to be to your work.
Tailoring To Your Lifestyle
Asses your lifestyle and consider the things you will need, then decide where costs can be cut and where splurges will be made. For example, if you exercise often and are an avid gym user you may spend $100 or more a month on a gym membership and rent cheaper living quarters, when a better option might be to rent a pricier apartment with gym facilities included. You may also want to move somewhere much closer to the places you most often go. You may be able to walk to work or the grocery; that way you’ll save money in the long run on a membership to the gym and possibly also save money on transportation; assuming that the apartment gym facilities are much closer than the outside gym facilities.
Calculate the expenses that will not be apart of the budget after moving before seeing a home as ‘too expensive’. For instance, if you have children and they are enrolled into private education, do not consider this expense if you are planning to move to a nicer neighborhood with better public education where they would be able to go to school for free.
These seem like small things but can make a big difference in making the budget for your rental home easier and can also save you a lot of money in the long run. You may be able to cut back in many areas which will save you money and can be put towards other things like a night on the town or vacation.
Contemplate New Utility Habits
If you’re moving into a new area, new utility habits should be budgeted for. Consider things like moving into an are where the climate is hotter or cooler than where you’re used to. You need to remember that you might be blasting the A/C or heater more than usual, these changes or indulgences should be accounted and estimated for when budgeting for a new place.
If you are prepared to cut back on long run expenses you might want to invest in some energy efficient appliances to help with this problem. Renters insurance also needs to be factored into utility fees. Keep in mind that, when considering a complete budget, some renters expect tenants to protect their own belongings. Even if the renter doesn’t require you to protect your own belongings, consider this when thinking about the long term value of your assets, as it might be wise to budget for renters insurance in case of an emergency.
Plan to Invest
It is advised and intelligent for renters to allocate money to invest into a future home.
Allotting money from your monthly paycheck to be put away for a down payment on a house may take away from your ability to enjoy luxuries now but will most definitely be worth it in the long run. Thinking about these long term investments are what will help you be a more successful renter and set up better financially for your future endeavors.
The chances of you being completely happy with your first rental place are slim. However there are probably things you never thought about prior to moving in that you will now be able to take into consideration next time and enjoy your second home better. Also, if you like a place but you’re still a bit skeptical about certain traits of it, is it never a bad idea to sign a shorter lease. They are often more expensive but might save you more money in the long run if you don’t end up being satisfied with your new place.