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Ask Jean Thursday: Can I Afford to Move Out?

iStock_000007893322XSmall“I recently graduated college, and have been living at my parents’ house for the past few months while I get settled into my new job. I am hoping to move out into my own apartment soon, but am worried that I can’t afford it. How do I know what I can afford to spend monthly on rent and bills?”

-Victoria, New York

Living at home — as so many recent grads are these days — gives you a great opportunity to build a savings cushion. But you’re right, before you move into your own place, you need to understand what it will actually cost you to live there.

Generally, I like a budget to break down like this:

35% Housing — this is not just the rent or the mortgage, it’s insurance, taxes, utilities and maintenance

debt-diet15% Transportation — not just your car payment (if you have one) but taxis, parking and insurance

15% Other Debt Repayment — this includes your credit card payments, student loan payments and any other debts you owe

10% Long term saving — the money you are putting into your emergency cushion as well as the retirement account you should be contributing to at work

25% Everything else — this is your life, food, entertainment, clothes, cosmetics, travel and anything that doesn’t fit into the other categories.

There is one rule. You can borrow from any category to flesh out another — except for saving. That’s sacrosanct. So, if your housing expense is actually 40% of your take home, but you don’t have a car so transportation is 10%, you’re still in the ballpark.

Knowing that’s how it works, here’s what I want you to do now, before you’re ready to move: Start hunting for an apartment. Take some time on the weekend and go out and look for apartments to get a sense of what the going rate happens to be. Ask any potential landlord what utilities are likely to be and get a quote or two for renter’s insurance online. Then look at your take home pay and see if the numbers mesh. If you are bringing home, for instance, $2,000 a month after taxes, and you find an apartment for $600 with utilities at another $100 and renter’s insurance for $240 a year or $20 a month, that’s a total of $720 a month, which is 36% of your take-home. Pretty close. But if you can’t find an apartment for less than $1000 or more, then it’s time to look in a different neighborhood or consider taking on a roommate. Do that for each category on the list (ask friends who have already moved out how much they spend on food, the gym, etc. to get a sense of what your budget may be) and you’ll have the answer to your question.

Finally, as for that money you’ve been accumulating at your folks’…it’s okay to use a small amount of it to pay for furniture and other start up costs of living on your own, but don’t raid the entire nest egg. This is your emergency stash. It’s there in case you lose that job and have to pay your rent for a few months while you look for the next one, in other words, for true emergencies rather than things you just want in the moment. Good luck!

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