Budgeting Tips for First-Time Renters
In the past decade, you’ve been through three graduations, four part-time jobs, and five existential crises. What are you going to do with your life? is no longer a question: you’ve accepted your first full-time job offer. It’s the first job that has required you to move out of your parents’ house. It’s time to go apartment hunting.
You’ve heard that your cost of living should be no more than 30% of your salary. With that wisdom in mind, you start looking for apartments with affordable rent. Upon first glance, things look optimistic - sure, you won’t be able to afford the brand-new luxury apartments down the street from your office building, but there’s a similar apartment structure a short bus ride away. And it hits your 30% requirement exactly.
That’s where we’re going to stop you. The Atlantic reports that half of renters spend more than 30% of their salary on rent, and a quarter of renters spend 50% or more. You might say that that won’t be you, but without due diligence it might be. Here’s why:
- Your cost of living isn’t just your rent.
You’ll have to factor in the cost of utilities (electricity, gas, water, cable, and internet). When you move in, the utilities companies might charge you a deposit. Internet and cable might also have installation fees. In addition to that, most landlords of apartment buildings will require you to have renters insurance before signing the rental agreement or lease.
- Your landlord will charge you fees.
Your property tax bill will depend on the neighborhood you live in; most rent agreements will include property taxes in the cost of rent. Your apartment building might also have facilities (laundry, pool, gym) or services (snow clearance, landscaping) that cost you a maintenance or facilities fee. If you have a pet, you’ll likely pay for them, too. Some apartment buildings might also charge you for parking.
- Rent goes up more quickly than salaries do.
Rental prices have increased by 18% over the last five years, outpacing increases in salary. Rent can increase for a variety of reasons - to match market rates, to pay for maintenance, to respond to tax increases, or to increase profits. For general safety, it’s best to sign a lease, keeping your rent at the same price for a year. Still, after that year is up, your rent could jump by as much as 25%.
So you have all these extra costs to keep in mind while calculating your cost of living. You can’t just consider the advertised cost of rent when making your budget. You’ll have to start conducting research into the cost of these extra living expenses, too.
How much is renters insurance?
On average, renters insurance is $150 to $184 per year, or $13 to $15 per month. Unlike homeowners insurance, which covers the building structure in the case of damage, renters insurance only covers your personal property. Renters insurance will also pay medical bills if someone injures themselves at your apartment, or for property damage caused by you. For a quote on renters insurance, click here.
How much are property taxes?
The Brookings Institution provides an interactive map on property taxes by county across the United States. In New Jersey, property taxes are, on average, 1.89% of the property value. In Pennsylvania, property taxes are, on average, 1.5% of the property value. Even if you don’t pay the tax directly, you’re likely contributing to it as a portion of your rent payment.
How much are utilities?
According to Zillow, utilities can add up to about $200 a month. Electricity bills range between $30 and $50 depending on how energy efficient you are. Air conditioning, depending on how much you use it, can add $50 to $80 to your electric bill. Heat could cost $100 to $300 per month you use it. Gas can cost up to $15 a month. Meanwhile, the newest necessity on our utilities bills is the cost of internet access, which costs about $45 a month. Internet can be bundled with cable for about $90 a month, but you can save money by cutting out cable entirely.
Wrapping your mind around all the costs of renting your first apartment can be difficult if your whole life experience has been in your parents’ home and on- or off-campus housing. With all of this, you might start thinking that it’ll be cheaper to own a condo or a house than to rent. Of course, then you’ll have to factor in homeowners association, landscaping, and maintenance fees. And if you have student loans to pay off, it might seem impossible to afford living on your own right now.
So what can you do?
- Split the cost.
Find a roommate or two to help split the costs of the apartment and utilities.
- Move to a less expensive area.
By choosing your new neighborhood carefully, you could not only save on rent prices, but also on other products, like food, gas, and entertainment.
- Choose an apartment with basic amenities.
Whatever you might pay in water and electric, you’ll save in having to cart your laundry to a laundromat every week or two. Look for an apartment with a washer and dryer. Save on electric by only using the dryer when necessary and investing in a drying rack.
- Save on utilities.
Utilities will add up if you’re not monitoring your use. Check out our blog on saving money on electricity to cut that cost by up to 50%, or click here for tips on keeping your house warm without breaking the bank. Easy fixes like installing programmable thermostats and LED light bulbs can do wonders for your electric bill. Cutting out cable and switching over to streaming TV can also save you money.
- Bundle your insurance policies.
Many insurance companies will give you a discount if you bundle your auto and home/renters policies. You can also save money by raising your deductible and reducing your premium on your insurance policies, if you want to take that risk.
- Save on other monthly bills.
Consider carpooling with coworkers to save on gas and vehicle maintenance. If you’re anything like the 92% of millennials who pay for subscription services, you’re probably paying an arm and a leg for something you could pay a lot less for by shopping in bulk. Favor outdoor activities like walking or running through the park over expensive gym memberships. Take a close look at your cell phone bill and evaluate whether you really need a pricey unlimited plan, or if you can cut that back to a cheaper plan. Keep in mind that if you turn on your phone’s WiFi at home and work, you won’t be using your allotted data anyway, so do you really need to pay for so much?
- Seek salary increases at work.
Of course, you might not want to start asking for a salary increase on the first day of work, but it’s important to remember that if you don’t ask, it won’t happen. Make a plan from Day 1 on how you’ll advance in your position. Make it clear to your supervisors that you’re not planning on staying in an entry-level role forever. Take advantage of professional learning opportunities and communicate with your supervisor about the requirements for the next promotion. Remember: rent goes up faster than salaries do. The best way to head off the inevitable increases in your living costs is not to rely on an annual bonus: it’s to move up in your industry.
Soon enough, you’ll be taking one last look at your childhood room and moving the last box out to the moving truck. Renting your first apartment can be a huge undertaking, but as long as you know what you’re getting into, you’ll come out of the experience better off - with an apartment in your name and a new level of freedom and responsibility. You’ll start that new job with the confidence that you have a home of your own to return to at the end of the day.