First Apartment Budgeting Boot Camp: Brit and Billy

Your first apartment budgeting boot camp continues. Today we look at two real life examples, based on questions we have received from two of our readers, Brit and Billy. (Next week’s lesson will cover apartment budgeting when you are moving in with your significant other.)

Brit:

“Hi there, I’m also looking to move out of my parents lol! I have been saving enough where I have an ’emergency/job loss fund’ and an ‘unexpected bills’ fund. As of now my take home pay after taxes, health insurance,401K is about 1800/mo.

I am looking to see what my target rent should be (and estimated utilities) as I prepare to move out. Car is paid off and parents will cover car insurance. Phone bill is $75, student loans $100, I estimate I would spend $180/mo for transportation, $200/mo on groceries, I would still like to save at least 15% for personal savings.

What would be a good target or range for apartments?”
(You can find Brit’s question as a comment to this post.)

Hi Brit,

Your question tells us that you are a financially responsible person –  you mention having savings and looking to add more, and you are contributing to a 401K plan at work. A great start!

Our basic formula is that your monthly rent should be no more than 35% of your take-home pay.  In your case that would be $630. So, let’s start your budget using that figure for rent. For utilities, our formula, based on our utility surveys, is about 20% of your rent.  Next, you add to your budget all your other known monthly expenses and expected savings. The monthly bottom line shows how much you have left for all your other discretionary expenses, such as clothing, entertainment, vacations, and Starbucks coffee runs. Only you know what that number needs to be for you to have a great first apartment experience and not run out of cash mid-month.

Even with the help from your parents with car insurance, your rough budget below shows clearly that with our formula rent you cannot save an extra 15%.  Also, your grocery budget seems a little light, unless you plan to do some of your shopping at your parent’s pantry. (Yes, it’s been known to happen!) You probably did not include lunches at work, either. Even at $5 a day, it’s another $100.

We don’t know what the rent levels are in your market. If you can get a place in the $500 range, lower your after tax savings target for now, and bump up your savings in your 401K a bit (it’s pretax money, so it has a little less impact on cash flow), then you should be able to make it. You may end up in a roommate share, but that’s ok, too. Good luck! Let us know how things work out.

Brit’s Budget:
Per month take-home $1,800
Max. rent -$630
Utilities, incl. cable/internet (20% of rent) -$126
Car payment (paid off) $0
Car insurance (paid by parents) $0
Gas (included in commuting?) $0
or Commuting/transportation -$180
Groceries/food est. -$200
Laundry/dry cleaning est. -$40
Cell phone est. -$75
Credit Cards $0
Student Loan -$100
Savings (15% of take-home) -$270
Cash left for all other expenses/Month $179
Clothing, entertainment, vacations, etc.

Billy

“Hey I know you’ve been helping a lot of people fine tune their budget on here and I’ve been struggling to make my own any help is greatly appreciated. I make 21/hr and pay 675 for my car 80 for phone 375 in other debt as well as 200 for commuting to work I work 40+ hrs per week what do you think I could afford???”
(You can find Billy’s question as a comment to this post.)

Hi Billy,

You have a well-paying job, but you have dug yourself in a bit of a financial hole. When the car dealer saw how much you make, he sold you set of wheels fully loaded with every expensive option. Or maybe you have a truly lousy credit score and you have to pay super high interest on your car loan. The result is that you pay $875 a month, or one third of your take-home income, for car expenses and commuting. Have you thought of trading down to a less expensive car? On top of that, you have $375 a month payment on other debt. Between these two budget busters, $1,250, or almost half of each paycheck is gone.

Based on our formula rent for someone making $21/40 hours, you should be able to afford up to $1,050 a month, but with you other obligations that is not doable. We don’t know where you live, but if you can find a place in the $500 a month range, you could start digging yourself out of the hole. (See rough budget below.) You’d have less than $100 a week for discretionary expenses, which is very tight, but you probably make a little more than what we estimated because of overtime. You need to pay down your other debt and start saving an emergency fund. Good luck, we are rooting for you!

Billy’s Budget:
Hours 40
Pay/hr $21.00
Total/yr (50 wks paid) $42,000
Est. taxes 25% ($10,500)
After tax take-home – $31,500
Per month take-home $2,625
Max. rent -$500
Utilities, incl. cable/internet (20% of rent) -$100
Car payments (incl. insurance?) -$675
Car insurance est. $0
Gas est. $0
or Commuting (includes gas?) -$200
Groceries/food est. -$300
Laundry/dry cleaning est. -$40
Cell phone -$80
Credit Cards $0
Other Debt -$375
Savings (target 10% of take-home) $0
Cash left for all other expenses/Month $355
Clothing, entertainment, vacations, etc.

Lesson 2. Make saving a priority.

If your company offers a 401K plan with a match, make sure you save at least enough to get the full match. In addition, you should have an emergency fund when you move out, even couple of hundred dollars will get you started. We have built a little slack into our hourly-pay rent formula, using a 50-week year, for two reasons: first, to make up for any unpaid sick or vacation days and second, if unpaid not used, then to give you an extra paycheck to go to savings.

Lesson 3. If you have dug yourself into a budget hole, stop digging.

There are only two ways to balance a budget that has gone out of whack: cut expenses or increase income. If your fixed expenses are the problem then you need to cut what you can. However, you must also find ways to increase your income, with overtime or side hustles, and use that extra money to pay down debt.

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