Dear New Frugal You,
It's been over two years since I graduated from college, and I've been living with my parents since then. I've put aside money from a part-time job, but I'm not sure it's enough. How much should I have saved to get to the point where I can rent my own first apartment?
Good question! And, one that a lot of young adults are asking in this tough job market. The result is that a lot of 20-somethings can't find the high paying full-time jobs they expected. And they end up back living with their parents.
According to Pew Research, more than 20 percent of 25-34 year olds live in a multigenerational household -- aka staying with mom and dad. That's the highest percentage since 1950. But the fact that you have a lot of company doesn't make living with your parents any easier. Let's see if we can figure out what it would take to move out and what it will take to stay in the apartment so you don't boomerang back.
It sounds as if you might have enough saved up for the initial outlay. I can't give you exact dollar amounts because rents vary. But I can tell you that you'll most likely be expected to come up with first and last month's rent plus a security deposit to defray the cost of damages you might do.
Now is a good time to check your credit score. Many landlords will do a credit check before offering you a lease. If your score is too low, they might not want you as a tenant. Some may ask for a higher damage deposit if your score is low. You might also find an error in your credit report you'll want to correct. About 5 percent of credit reports contain errors serious enough to affect credit scores. You can get a free copy of your credit report from AnnualCreditReport.com, and for about $20 you can pull one of your FICO scores from myFICO.com.
Beyond the initial rent and deposit, you'll also need enough cash to set up the apartment, including the cost of any utility deposits.
Don't forget any items that you'll need to buy. Do you have cookware? Basic cleaning supplies? Furniture? Some things you can live without temporarily. But total up the stuff that you'll need to buy when you move in.
Once you're convinced that you have enough to cover the initial expense, the next challenge is whether you'll have enough for the ongoing, month-to-month bills.
As a general rule, you don't want your housing expense (including utlities, insurance and maintenance) to be greater than 35 percent of your take-home pay. If you're still paying on student or auto loans, you're better off trying to stay under 30 percent.
You'll be tempted to ignore this and stretch it to 40 percent or more, particularly if you're in an area where rental costs are high. You might even juggle some budget numbers to make it all seem OK. But it won't be. Sooner or later you'll have an unexpected bill or shortfall in income.
If you're working part-time, you'll probably have trouble finding a place that fits within your income. One solution would be sharing a place with friends.
It's also unlikely that rent will be your only monthly expense. You may need to pay for utilities or renters' insurance.
And are you currently contributing to the groceries in your parents' home? Just because Mom is willing to feed you now, don't assume that she'll stock the fridge in your new apartment. You'll probably have to do that yourself -- and pay for it as well.
Finally, take a moment to consider how secure your paycheck is. Even if you could find a new job in a few weeks, could you handle the gap between checks?
Don't cut your finances too close. If you should find that you're in over your head, you'll not only feel bad about it, but if you end up defaulting on your lease obligations you could damage your credit score.
One way to see how ready you are is to do a test run: Take the amount you'd pay for rent and set it aside, then try to live on the remaining amount. Doing that for a few months would simulate what rent would do to your finances.
LaDonna, I don't know if you're financially ready for that apartment now. But whenever you are ready I hope that you find the perfect place!
See related: Time for my first apartment?