Have you decided it’s time to move on your own? A solid financial plan will start your life on the right foot. Image source: Getty Images.
It is both exciting and scary at the same time when you decide to move for the first time. On the one hand, you will have as much freedom and independence as you want. But with these perks, you have a lot more responsibility than living with mom and dad, especially when it comes to your finances.
Young adults are often shocked by the stickers once they find out how much it costs to live on their own. If you’re not careful, you might find it hard to make ends meet or even go home. That’s why you need to get your finances in order before you move.
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Find a reliable source of income
Moving means more bills, so a stable income is a must.
Ideally, you will have a full-time job where you will work at least 30 to 40 hours per week. That being said, the concert economy has exploded in popularity, and there are more people than ever working as independent contractors with no set hours.
Whether you’re an employee or an independent contractor, take a look at what you’ve earned in the past three to six months to calculate your average monthly income. This will help you when you budget later.
If you don’t have at least three months of experience in what you are doing now, you should wait until you’re done before considering moving. It is important to make sure that your income is stable and that you will be able to do this work over the long term.
Build up your savings
People often underestimate how much money they should have before they move. Here is what you should have saved to your bank account:
- To rent – You will need at least the first month’s rent, and some landlords also charge the last month’s rent in advance, although there are many who no longer do.
- A security deposit – Deposits are often equal to one month’s rent, but they can be much more. Your credit score can affect how much the landlord charges you for a deposit, but if a relative is willing to co-sign an apartment application for you, it could help you get the lowest possible deposit.
- Moving expenses – It will depend on how far you are moving, how much goods you need to move, and whether you want to hire professional movers or do it yourself. You could spend less than $ 50 for a move within the same city that doesn’t require professional movers, or the costs could be well over $ 1,000 for longer moves.
- An emergency fund – The standard recommendation is to save three to six months of living expenses. While you may not be able to save that much before you move, you should make sure you have at least $ 1,000 in case of an emergency, such as a medical issue or mechanical issues with your car.
Let’s say you are going to rent a one bedroom apartment for $ 1,000 per month. If the deposit equals the rent, you will need $ 2,000 saved just to move in, plus your moving expenses.
Since you should also have money for an emergency fund, you are considering a minimum of $ 3,000. It’s just a minimum, and it could easily cost you more if you have a more expensive move or depot.
Calculate the rent you can afford
Before you start looking for an apartment, you should have a price range in mind. The most common recommendation here is that you don’t spend more than 30% of your gross income (before taxes) on rent. So if your gross income is $ 2,500, your rent limit would be $ 750.
If you are moving to an area with a high cost of living, you may find that there are not many, if any, desirable apartments in your price range. In this case, you can reduce costs by living with roommates.
It’s usually best to live with someone you know, if possible, but that’s not always an option. If not, you can search room rental listings or roommate search listings online. Just be prepared to spend some time shopping for the right situation in life.
Establish a budget
The last step in making sure you’re ready for that move is to budget. This is where you list all of your planned monthly expenses and see how much of your income you will spend on those expenses. While the expenses will vary depending on your lifestyle, here are some of the most common:
- To rent
With fixed expenses, like your cell phone bill or health insurance, you can just plug in the exact amount. However, since this will be your first time on your own, and there will be bills you haven’t paid before, you’ll also have areas where you need to use the projected expenses. These are your forecasts of what this expense will cost you on average per month.
Are you wondering how you can come up with these projections? You will have to ask around and do your research. Your parents can probably help you estimate many of your expenses, and you can fill in the gaps by researching online what other people are paying in the area you are considering moving to.
Once you have your budget, you need to check that you can pay all of your bills with a lot of leeway. A popular recommendation is that all of your after-rent expenses should not exceed 50% of your gross income, and that you set aside 20% of what you earn each month in your savings.
Not everyone is able to handle this initially, but if you are going to be spending more than 70% of your income on living expenses then it is a good idea to wait to move or find cheaper accommodation. .
Transition to adulthood
No matter how well you prepare for it, moving alone is a big change in anyone’s life. However, if you follow a solid financial plan before your move, you will avoid a lot of stress later on.