First Apartment Budgeting Boot Camp – Formulas and Guidelines

Moving into your first apartment is a big learning experience in so many ways: How to deal with landlords? How to keep your place clean? How to manage to cook and eat a healthy diet? However, for most first time renters the biggest learning hurdle is how to manage all the new expenses.

For the next few weeks we are going to run a MFA Budgeting Boot Camp, so that when your time comes to move out on your own you’ll know what to expect. We are going to do that two ways, with some formulas and guidelines for estimating typical apartment expenses, plus running through some tricky real life budgeting situations that our readers are submitting in the comments, for example in here and here. You can also submit your budgeting dilemmas as a comment to this post. (Please read our Terms&Conditions before posting any comments and protect your personal identity by not including your full name or other identifying information.) We’ll pick couple of interesting situations to cover each week.

Here are typical annual pay levels for 2017 graduates:

• College – Bachelor’s Degree $41,880 (estimate taxes/deductions at 25%) 1.)
• High School – $10 an hour, 40-hour week, $20,800 (estimate taxes/deductions at 15%)

Here are typical expenses you’ll have to budget for when you live on your own:

• Rent (see Affordable Rent Calculator and How Much Rent Can I Afford on My Hourly Pay for how to estimate)
• Utilities – electric, cable/internet, water, heat, garbage collection (estimate at 20% of rent) 2.)
• Renter’s Insurance (estimate at $17 a month)
• Car Loan or Lease (estimate at $300 a month) 3.)
• Car Insurance (estimate at $150 a month) 3.)
• Gas (estimate at $50 a month)
• or Commuting expenses (find out your city’s plan – in NYC  unlimited 30-day MetroCard is $121)
• Groceries/Food (estimate at $300 a month) 4.)
• Laundry/Dry Cleaning (estimate at $40 a month)
• Cell Phone (estimate at $80 a month) 3.)
• Student Loans
• Credit Cards
• Health insurance (if not covered by parent’s plan)
• Saving – Retirement and Emergency Fund (estimate at 10% of take-home pay)
• Discretionary Expenses – clothing, entertainment, vacations, etc.

So, let’s see how our two new graduates will fare.

College Grad Salary $41,880:

Take-home pay (after taxes and deductions) per month $2,618 ($41,880 less 25% divided by 12)
Less:
Rent  $1,047 ($41,880/40)
Utilities $209 (20% of rent)
Renter’s Insurance $17
Car Loan or Lease $300
Car Insurance $150
Gas $50
Commuting $0
Groceries/Food $300
Laundry/Dry Cleaning $40
Cell Phone $80
Student Loans ?
Credit Cards ?
Health insurance (if not covered by parent’s plan) ?
Savings $262 (target: 10% of take-home)
Amount lefts for Discretionary Expenses if has a car $162
Amount left for Discretionary Expenses if no car, but uses a monthly MetroCard $541

High School Grad Salary $20,800:

Take-home pay (after taxes and deductions) per month $1,473 ($20,800 less 15% divided by 12)
Less:
Rent  $520 ($20,800/40)
Utilities $104 (20% of rent)
Renter’s Insurance $17
Car Loan or Lease $300
Car Insurance $150
Gas $50
Commuting $0
Groceries/Food $300
Laundry/Dry Cleaning $40
Cell Phone $80
Student Loans ?
Credit Cards ?
Health insurance (if not covered by parent’s plan)?
Savings $ (target: 10% of take-home)
Amount lefts for Discretionary Expenses if has a car ($88)= Must dip into savings
Amount left for Discretionary Expenses if no car, saves 10% and uses a monthly MetroCard $291

Lesson 1. Your car can be a budget buster

What do we learn from these two hypothetical examples? If you must have a car, you may have hard time carrying the expenses of living on your own.  Luckily, if you are heading to a city with good public transportation options, you may not need a car, making it easier to afford the (often higher) rent.

Sources for estimating income and expenses:
1.) Average salary for all majors, as reported by US News.
2.) Average utilities for Studio/1BR per MFA Surveys
3.) Car loan and insurance, and cell phone costs are rough estimates, based on averages of actual expenses paid by MFA’s readers, as described in comments to the site’s posts.
4.) Reference .com – Average grocery bill for one person