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How Much Rent Can You Afford: Setting a Realistic Budget

Published July 9, 2021

7 minute read

By Justine Reist

Finally moving out of your parent’s place and into your own space can be an exciting and monumental time in most young adults’ lives. However, before you start planning your décor or buying new furniture, it’s wise to figure out how much you can afford. Forming a budget to rent an apartment can be a little tricky, especially if managing money is also new to you.

Whether it’s your first apartment or just your next one, you may feel overwhelmed by all the financial responsibilities that come with it. No matter your situation, we can help you. Your housing costs will inevitably be one of your largest (if not the largest) expense for your adult years, especially if you’re stuck renting for a big portion of it. Here’s how to answer the question, “how much I can afford in rent?

Budgeting For Your First Apartment

Rent costs will fluctuate depending on where you live. Not only that, but rent prices seem to have skyrocketed especially quickly in recent years, adding even more financial stress for would-be tenants. You may find that rent is much more expensive than you originally anticipated. That means your paycheque might not spread as far as you had hoped.

Whatever the situation, it’s essential to build a realistic budget for your first apartment. With a plan in place, you won’t be spending more than expected and racking up more debt. You’ll also find yourself with more funds to spend on other (more fun) things.

First Considerations

The primary guideline for rental costs used to be no more than 30 percent of your monthly income. However, that may be a bit misleading. Are you basing the 30% off of your gross or net pay? Most financial experts suggest your gross pay, without any concern for any other financial commitments you may be stuck with. For example, if you have an expensive car or student loan, a large credit card balance, or have to pay something like child support, you may not be able to swing 30%.

Beyond your personal situation, not all rentals are equal. Will your rent be all-inclusive in terms of utilities? Or will you have to also budget more money for those services too? As we said, the 30% guideline may not be realistic for you, depending on a number of factors — some outside of your control.

How to Start Your Budget

To get your budget started, you need to figure out your monthly income. Once you’ve got your income figured out, you can now calculate all of your monthly expenses. And we do mean all of them. Don’t forget even the smallest ones like a Spotify or Netflix account. Subtract all your expenses from your income, and then give yourself a small buffer. This is how much you have to spend on your living expenses.

Suppose this is your first time living on your own or your first time living without financial help from Mom and Dad. In that case, you might have to adjust your budget and expectations a few times in order to find a realistic number. It’s time to estimate how much you will spend on bills you may not have had before, like groceries, gas/transportation, and various insurance costs (car? life? renters’ insurance?).

Woman making a budget

Shutterstock

What Are Living Expenses?

Living expenses include any expenditures that are necessary for basic daily living. These expenses include your rent, utilities, and insurance. While finding a rental that includes utilities in the cost of rent makes things more accessible, it’s not always an option. If you cannot find an all-inclusive option, you will need to include these living expenses within your budget.

You shouldn’t neglect insurance either. You might not think to include it, since you were probably covered under whatever home insurance your parents had when you lived with them. Now that you’re out on your own, you’ll want to take steps to protect everything you work so hard to get. The good news is that renters’ insurance is fairly cheap.

Let’s break down the biggest living expenses you’ll have to budget for, starting with the biggest one — rent.

Rent

Rent is simply the amount of money you pay to remain a tenant in the space. It’s typically paid monthly. Most rental contracts come with a set term, usually one year (although it’s possible to get a two or three year contract too, if you ask). Your rent should stay the same for every month for the duration of the contract.

If you get a month-to-month agreement, you’ll have more flexibility. However, the landlord will also be able to increase the rent without much notice. Many rental contracts with 12-month terms switch to month-to-month at the end of the initial term. Whichever contract you end up signing, make sure you are clear about the terms and the exact amount of rent you’re required to pay.

Security Deposit

Most rentals will require one-to-two months worth of rent as a security deposit. The security deposit is usually returned to you when you move out, as long as there is no damage done or repairs needed. Include this cost in your original budget and your initial moving costs.

Some landlords are notorious for coming up with creative ways to keep security deposits. In order to ensure that you get yours back, take a few steps to protect yourself. Before you move in, examine the apartment/house/condo thoroughly. Point out any flaws, damage, or needed repairs to the landlord. Ask that they be fixed before you move in, or at least documented as pre-existing.

Second, take photos or videos of the place when you first move in. You’ll want to be able to compare the state of the rental to the day you move out, in case you need to argue for your security deposit. Finally, take care of the space while you live in it. Just because you’re only renting a place to live doesn’t mean you shouldn’t treat it well.

Basic Utilities

This include things like your electricity, natural gas, and water. Depending on the landlord, these costs may be completely covered by your rent or not covered at all. You may have to start new accounts with these utility companies (which sometimes requires a greater up-front cost in the form of another security deposit).

The good news is that being in an apartment can help keep these costs low. You won’t need as much heat in the winter, for example, since you share walls with other heated apartments. However, remember that these bills aren’t optional. You’ll have to pay them every month, without fail. Missing payments can result in your utilities being turned off and will have a negative impact on your credit score. You could even end up in collections over missed utility payments.

Woman calculating electric bill costs

Shutterstock

Internet and Cable

It’s rare for a rental to include these services, but it’s not impossible either. For the most part, you will be responsible for these charges. While you may be part of the generation that is happy to cut the cable cord, reliable internet service is basically a necessity for most people these days.

Depending where you live, there could be multiple providers and bundles to choose from. Hopefully, you can shop around to find the best deal. Watch out for data limits, which can get expensive if you routinely go over them. With the average cable TV well over $75 these days, you may want to opt for a streaming service or two instead. Try these TV apps for low-cost (or free) watching options.

Renters Insurance

Many landlords will require you to provide proof of renters insurance before moving in. Renters insurance protects all your belongings in your apartment in case of theft and certain damages that may occur. Luckily, this is pretty low cost. It can usually be bundled with your car insurance if you own a vehicle.

It’s important to remember that renters’ insurance doesn’t cover the structure itself. The owner (aka the landlord) will need to have their own insurance for that. Renters’ insurance only covers your personal belongings inside the dwelling. For a more in-depth guide on renters’ insurance (and why it’s important), check out this article.

Other Fees

You may be required to pay other fees when you rent. They include fees for things like garbage pickup, pest control, parking, storage, and administration fees. If you choose to have a pet in your apartment, you may also need to pay a pet damage deposit. There could also be condo associations or homeowner’s association fees, which are typically spend on general upkeep of the building and landscaping.

Not every rental comes with these fees. You mileage will vary from city to city, building to building. The important thing, when it comes to budgeting at least, is that you aren’t suddenly hit by surprise fees. Not being aware that you’ll have to pay extra for a parking spot or garbage pickup could be the thing that takes your meticulously planned budget and blows it to pieces. When viewing a potential rental space, it’s wise to ask about any and all fees that are required.

Keeping Costs Down

While doing your budget, you may realize that the type of apartment you were hoping for is just out of your financial reach. However, all is not lost. Refocus your goals to gain additional savings by looking at some alternative living situations.

For example, it’s usually cheaper to live in a studio or basement apartment than in a one or two-bedroom high rise. You can also consider more locations. Sure, living in the city may have been your dream, but it comes with a higher cost. You might find more affordable rentals on the outskirts of the city instead. Regardless of where you choose to live, consider your commute to work as part of the equation. Living far from the office to save on rent doesn’t make any sense if you’re just turning around to spend those savings on commute costs (gas, transit, wear and tear on your car, Uber, etc).

Finally, you can consider getting  a roommate. Sure, some people prefer to live by themselves. However, there’s no arguing that splitting the bills with someone else can provide a lot of financial freedom. How to pick a solid roommate is a whole different article, but don’t discount the option if you’re struggling to find an affordable place to rent.

Young woman paying bills

Shutterstock

The Bottom Line

Consider all of your options and all the possible costs when you’re searching for a new rental. It’s important to note all of the expenses when comparing the location and style of apartments that interest you. While one apartment may have a lower monthly rental cost, the additional fees may be higher. The great deal you thought you were getting may not be as great as it initially seemed.

Work out your budget, run your numbers multiple times, adjust as you go, ask questions, and start saving. You’ll be out and on your own in no time!

Freelance Writer

Justine Reist is a mom of two who lives in Guelph, Ontario. She graduated from Conestoga College in 2010 with a diploma in journalism. In her free time she enjoys lifting weights, watching horror films, and spending time with friends and family. She's never met a taco she didn't like.

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