How To Know If You’re Financially Ready To Live on Your Own
If you work and receive a steady income, you’re taking a step in the right direction that allows you to live on your own. Aside from being employed, what other signs show that you’re financially prepared to live independently?
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GOBankingRates spoke to Ruth Shin, founder and CEO of PropertyNest, to learn more about how to calculate whether you can afford your monthly rent, what your credit score should look like and the minimum savings you need to live on your own.
How To Calculate Living On Your Own
There are a few ways to calculate whether you’re ready to live on your own. The first is the 30% rule, which involves putting 30% of your gross income into rent. Generally, renters should not exceed that percentage.
The other method is the annual income/40 formula or 40x rule. Divide your annual gross income by 40 to determine how much you can spend in rent. Shin said this formula is used by many real estate professionals and landlords to assess your qualification. It also gives you a good idea of how much you can afford for monthly rent.
If the number you get from the income/40 or 30% rule is not enough to afford a one-bedroom or studio apartment, Shin recommends moving in with roommates.
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Before Moving In: Minimum Savings Requirements
Before you prepare to move into a space, you’ll need to pay for certain expenses. Some of these include, but are not limited to, first month’s rent, a security deposit and a potential last month’s rent. How much should you have in savings to meet these requirements?
At a minimum, Shin said you’ll need to save enough money for at least one month of security deposit and the first month’s rent. This amount may also include the last month’s rent, depending on the city or area.
Unexpected Fees To Watch Out For
There are also a few unexpected fees that renters need to pay attention to, such as working with a broker to find an apartment.
“There are plenty of opportunities to find no-fee apartments; but, if you want to open up all options, you should think about saving additional money to pay the broker’s fee,” Shin said. “Usually, this is anywhere from one month’s rent to about two months’ rent.”
The other unexpected fee to anticipate is your application and credit check fee. Shin said this can cost you anywhere from $10 to $200.
What Should Your Credit Score Look Like?
“The rule of thumb is that you should have a credit score of at least 680,” Shin said.
Depending on the market, your credit score may be lower. However, Shin said renters in the most competitive markets may be required to have well over 700.
Moving In: Bills To Anticipate Paying
If you have a solid savings and a thorough understanding of fees and you have passed the application and credit check, you’re well on your way to moving into your new place.
Unless otherwise informed by the building owner, you are generally responsible for paying all utility bills, including electricity, water, trash and sewage. You also must pay for internet and cable or streaming services, and you are responsible for existing variable bills such as groceries, car insurance and gas, health insurance and cell phone bills.
If you’re moving in with a pet, like a cat or dog, you may be required to pay a monthly fee. You also may be charged for a parking space and may need to enlist the help of a moving company or pay for a moving truck.
Another bill to anticipate paying is renters insurance. It may or may not be a requirement where you live, but Shin highly recommends getting it for your peace of mind.
“Renters insurance costs very little and in some cases can be less than $10 a month, but it will save you the headache if there’s any damage or burglaries to your apartment,” Shin said. “Remember, your landlord is under no obligation to compensate you for any loss or damage.”
Final Considerations Before Signing a Lease
Before you sign your lease, Shin said to be ready to quickly access income documents and the needed funds. The most commonly requested documentation includes copies of recent bank statements, tax returns, pay stubs or statements and a government-issued photo ID. If you started a new job and don’t yet have pay stubs to share, you may be required to provide an employment verification letter.
You may not be able to pay security deposits and first month’s rent using a personal check either. Shin said some landlords or management companies may take credit cards, wire transfers and electronic payments, but a bank-certified check or a money order may be requested.
When Should You Wait To Move?
If you don’t have enough savings to cover the security deposit, first month of rent and moving costs, Shin recommends waiting a bit longer before getting your own place. If you can’t save additional money yet or don’t have enough of a financial safety net (at least six months’ worth of rent), Shin advises waiting as well.
“Paying rent should not take up the majority of your paycheck,” Shin said. “Continually paying rent will become increasingly difficult once your savings run out.”
If you have your eye on a dream building that is out of your price range, Shin recommends looking into a higher-paying position to comfortably afford the rent, especially if you’d like to live there for more than a year.
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