Budgeting for Rent to Help You Balance Money Better
Renting a home is a very common move that people make. Sadly, it is also one of the most expensive. In fact, it is almost always better to buy than it is to rent. Sometimes, though, buying is not an option- or not the right one. Maybe the move is only temporary. In this case, buying a home would probably be senseless.
Sometimes, a person’s credit, income, or lack of down payment keeps them from buying. In this case, renting can be a great option while the renter improves their financial condition. No matter the reason you are renting, the fact is that you need to budget for rent. This guide will help you do just that.
Fitting Rent Into Your Budget
When budgeting for rent, most experts suggest that you should not spend more than 30 percent or one-third of your income on rent. While this is not bad in theory, it may not work out in practice for everyone. Between debts and other living expenses, there may simply not be 30 percent left. There may be a much lower amount. Then again, it could go the other way instead.
It is important when you are living on a budget to calculate your personal expenses so you can determine how much you can safely afford for rent. Follow these steps and you should have a good answer:
Figure Out Your Income
Of course, you cannot take any other steps until you know how much income you have to work with. For some people, this will be simple because they work the same schedule every week so they know what their checks look like. If you are a freelancer, server or bartender, self-employed, or just have a fluctuating schedule, you may not know the exact amount. Instead, you will need to do a little calculating.
Now, there are two ways to do this: You can determine the average you have made over the last several months or you can determine the lowest amount you make and budget with that. I prefer to err on the side of caution, so I tend to calculate with my lowest month. Otherwise, I am budgeting with money that I may or may not get again. I would rather go with the low side, and if anything is leftover, good. I can work toward other goals. If not, I am still not in danger of missing my rent.
You can choose to use an average of your last several months’ income if you choose. If you do, though, you should be sure you put up extra money on good months so that you will not be struggling on the hard months.
Figure Out Your Necessary Expenses
Now that you have determined your income, your next step in budgeting for rent need to calculate what goes out. It is really hard to know how much your utility bills will cost until you move in somewhere, but you can still get a good idea. If you have a particular rental in mind, you can usually call the utilities companies and ask them what the average bill is. Of course, they cannot give you specific details about the prior occupants, but they can tell you about what you can expect to pay.
You can also think about everything you have paid over the past few residences and get an average of what your bills might be. It never hurts to overestimate to make sure you budget enough. It is always better to overestimate than underestimate when budgeting for rent and other things.
In addition to utilities, you need to calculate the amount you spend out each month for other needs, such as household items, gas for your car, prescriptions you may have to pay for, and things like that. Add these expenses onto your other expenses and write the total down.
Figure Out Any Debt
Your third step in budgeting for rent is to add in any debt that you are currently paying on or need to start paying on. This includes any loans, credit cards, and old debt.
Figure Out Any Extras
When you are budgeting for rent, do yourself a favor: Do not forget to add in the extras. I am talking about that money you spend that is not necessary, like movie night, eating out, and so on. If you normally spend money on it, you need to add it in. If you do not, you will spend that money and wonder why you cannot pay your rent. We will work on carving down your budget later. For now, if you spend money on it, add it in.
Don’t Forget Savings
If you lost your job, could you still pay your rent? Most of us could not, and that is a problem. That leads to evictions and messed up rental histories. Protect yourself by making sure you have money to save. Ideally, you need to have at least three to six months of living expenses paid. Calculate how much you can save each month to work toward this amount and add it in. This is a very important part to include in your budget.
How About Your Goals?
You probably also have financial goals you want to meet. Maybe you are hoping to buy your own home but you need to save for a down payment. Some people need to buy new cars. There are all kinds of goals, and they should not have to put to the side just because you are paying out money for rent.
Go ahead and add them to your budget list now, so we can add them in while budgeting for rent. You need to consider the date you would like to reach this goal and determine how much you would have to save per month to reach them by that date. Do not worry about if it seems like a lot right now. We can work on that in a minute.
Check the Damage
You should have a pretty thorough list of things that need to be considered while budgeting for rent. Take a moment to add all the monthly costs up. At this point, we have not added in rent at all, so hopefully, you have some space to work. If the costs you added up either take all or most of your check, you have some work to do. If there is enough left over from your income to pay the average amount of rent for your area, you are already doing good. Still, the ideas in the next section might help you increase that.
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Make Room In Your Budget
If you need some more room in your budgeting for rent, it is time to take a look at that budget list again. One of the biggest steps for living on a budget is to cut back where you can, so we are going to talk about one category from above at a time.
Goals
We are going to start with the goals you listed. No, I am not going to tell you to forget them. I am just going to ask you to take a look at them again.
Could you possibly extend the deadline for your goal date, even if it gives you just an extra month or two to save? Could you downgrade without compromising? What I mean is do you have to have the latest iPhone when the last model works well or the $2,000 smart TV when they have one the same size for $500?
Understand, I do not want you to compromise your goals, but there are usually ways that you can cut back and still get what you want. Just think about it before you make any moves.
Savings
No, you should not compromise at all in this area. You need money saved just in case the worst happens. There may be ways to do it, though, like earning your savings each month through various money-making apps. Just find one that sends you PayPal cash and earn as much as you can. If you do not make enough through something like this, set up automatic deposits so the moment your check hits your account, the amount you choose goes to your savings account.
Extras
Ok, we are going to talk on this one for a minute. I told you to add in all of your extras in the beginning for a couple of reasons. One was so that you could see the amount you could potentially save. The second reason is because I know it is impossible to cut out all extras and still enjoy life.
No, you probably do not need to go to the movies every weekend- in fact, I’m pretty sure you do not unless it is your job. Going once a month as a reward for hard work is not as bad though. Buying a latte once a week is not so bad- every day is a completely different story.
My point here is that, unless it is an absolute must for a set period of time- like maybe a few months to save for a particular item- I would never suggest that you cut out all of your extras. Seriously, what is the use of hard work if you never get to enjoy it? You should do it in moderation, though.
Take a look at your extra- a very good look. What can you and are you willing to cut down on? Remember, you are budgeting for rent. The more money you can save on things you currently spend money on, the more wiggle room you have for rent. As you go through your list of extras, just ask yourself if that item is worth giving up or cutting back on for rent money. If not, move onto the next item and ask the same question.
Debt
I am also not going to discourage you from paying debt as this is important to your future. Instead, I am going to give you a couple of tips to try:
If it is an old debt you are working on, call and ask the creditor if they can give you a settlement deal. Many are happy to do this since they really want to get their principal money back.
If you are paying on a current date that includes interest every month, like a credit card, call the credit card company and ask for a lower interest rate. If that does not work, look into balance transfer cards with better interest rates or at getting a personal loan with lower rates to pay off the high-interest credit cards.
If it is a loan you are paying on, you might consider refinancing the amount you owe for a lower interest rate or get another loan to consolidate your current loans.
Necessary Expenses
Your necessary expenses, especially utilities, are a little harder to cut back on, but it is not impossible. I have also mentioned cable in this section. Granted, it is not a necessary expense, but many people consider it one. And sometimes, cable is a must in order to have internet, so I added it here.
Here are a few tips to cut down your necessary expenses:
Cut out what you do not need or use- the extra data on your phone, the cable that is virtually unnecessary now thanks to streaming services
Cut down where you can- the 200 cable channels you forget are even there, use less electricity, water, and gas (if it is something you really have to keep, cut down your usage as much as you can)
Negotiate what is left- call around for cheaper insurance, ask your cable provider for a better rate
Re-evaluate
Now that you have hopefully shaved some money down, how does it look? Do you have enough space to comfortably budget in rent? If not, you might consider going back through your current budget. However, if you find that even after all that shaving down, you still need a big chunk of change to start budgeting for rent, you just might have to find a way to make more.
Make Extra For Rent
Sometimes when you are budgeting for rent and other things, cutting down your budget is just one part of the equation. The other part is expanding your income. If you already work 40 hours each week, you may be wondering just how you can fit in another second of work. I know- I have been there. Fortunately, I have a few ideas for that you should be able to squeeze in. Just go down this quick list and see what might fit into your lifestyle and schedule:
Fill Out Surveys
Really, this is not going to net you a lot of money, but it can bring a little extra in. And you can do it once a week or each night as you are watching your favorite shows. This is a great idea if you need a little extra or if you can add this to a couple of other things.
Money Making Apps
There are tons of apps out there to make some side cash on. Shopkick is one of my favorites right now. You scan items in stores you already shop in, earn points for scans, and then cash in for PayPal cash. How much you make really depends on how often you are willing to go to the stores.
Offer a Service
Maybe you can clean a couple of houses twice a month. You do not have to do it every weekend your off. Just a couple of times a month. Depending on the home, you can make hundreds each month part time. When I did it before, I made almost $100 each day I did it, and that was just for a few hours of work.
You might also offer to babysit a couple of nights a month for parents who need a date night. Try to get yourself a few couples that want to make date night a monthly or twice a month thing, and you will have a decent amount rolling in. If kids are not your thing, pet parents look for pet sitters all the time.
Offer a Product
Can you grow a garden- even a small one- in your home or yard? You could sell produce on the weekends at your local farmer’s market. Do you bake really good cakes? Try selling birthday and wedding cakes.
If you are budgeting for rent and need some extra money, there are literally innumerable ways that you can do it. You only need to find your sweet spot and commit to it. If you can somehow manipulate your budget so that 30 percent of your income can be free to go to your rent, you will be in great shape. If you cannot quite hit that 30 percent, just get as high as you can.
Conclusion
Budgeting for rent takes some work, but it is something that you need to do. Not being able to pay your rent can cause you to lose your home and mess up your chances for renting in the future. Take the time and the steps you need to budget for rent so you can make the right choice about what home to rent.