Before you start your search for your next apartment, it’s important to first establish a budget for yourself. One of the biggest mistakes an apartment hunter can make is not establishing their budget before they start their search. It’s hard to compare your options without setting a budget range to guide your apartment search. Additionally, without a budget it’s difficult to make a disciplined decision when you’re considering apartment units. If you tour an apartment that you love, only to learn that it's out of your budget during the application process, you might feel like you’re settling for the next apartment.
How should a prospective resident go about calculating how much they can afford to spend of the rent? Here are some tips.
Always Use Net Income for Apartment Budgeting
When calculating your apartment budget, it’s important to make sure that you use your net income, not your gross. Your gross income is the total income that you earn from your employer. However, most workers won’t bring home their gross income as taxes will be withheld first. Your net income is the total take home pay you earn after taxes have been withheld.
When you apply for an apartment, some property managers will ask you for your gross income to approve you for an apartment. But when you’re doing your own budgetary calculation, make sure you’re inputting your net income so that you have a more accurate glimpse at what you can afford.
Calculate All of Your Fixed Expenses
Once you’ve determined what your net monthly income is, you’ll need to calculate all of your fixed expenses. Fixed expenses consist of any expense that you are responsible for. Housing is usually the most expensive fixed expense that a person has, but in order to determine how much you can afford for housing you’ll need to know how much of your net monthly income is already spoken for.
Examples of fixed expenses include:
- Health Insurance
- Renter’s Insurance (Most apartments will require renters to have renter’s insurance)
- Cell Phone Bill
- Car Payment & Gas
- Tuition or Student Loan Repayment
The 50/30/20 Budgeting Rule
A good rule of thumb for calculating your apartment budget is to observe the 50/30/20 rule of finances. The rule advises that 50% of your total net income should be devoted to your “needs,” which is made up of your rent and other fixed expenses we discussed in the last section.
Then, take 30% of your net income to qualify as your wants. This includes all of the things you love to do, or buy, that don’t qualify as needs. Some items that belong to this group could include:
- Gym Membership
- Video Streaming Service
The final 20% of your net monthly income is dedicated to savings and debt repayments. Warren suggests that each month you put away a portion of your net monthly income to prepare for unforeseen expenses.
To give you an idea of what the 50/30/20 rule looks like, let’s take a hypothetical resident that earns a monthly net income of $2,500. That gives them $1,250 to allocate towards their needs. Let’s say that between their car payment, phone bill, health insurance, and their student loan payments they pay $400 a month. That would leave them with $850 a month to allocate towards rent.
Which takes us to our last tip.
Don’t Forget Utilities
A common mistake that residents make is that they don’t factor in utilities to their monthly budget. The utilities that a resident is responsible for will vary depending on the apartment they rent, but usually a resident will at least be responsible for their energy and water usage. To determine how much you should allocate for your utilities, a conservative tip is to average your utility expenses in your previous apartment together for the year. That way you can prepare for the more expensive months such as summer when your A/C will spike your monthly bill.
If you’re committing yourself to the 50/30/20 rule, you’re going to want to allocate some of your non-essential utilities into your wants portion of your budget. Utilities such as wireless internet and cable would be examples of non-essential utilities to place in your 30% budget.
Find an Apartment In Your Budget Today
Once you’ve calculated your budget you’re ready start your apartment search. Searching for an apartment is an exciting time, however, it can also be time consuming and stressful. If you don’t have the time to search for apartments in your budget, partnering with an property management company like Elevate Living is a great idea.
At Elevate Living, we have a wide variety of apartments available in your area. Instead of stressing yourself out and conducting the search on your own, let us take on the busy work. Let us know your budget, and the locations and amenities that you’re interested in, and we’ll come back to your with a list of properties for you to look at.
Contact us today to get the process started.