This is a continuation of Moving: Making the Decision, where I talked about the budget I made to help me decide if I could afford to live on my own for the year following college. The budget I made can be downloaded as a PDF, if it helps you to follow along. If you’re just joining us now, please go back and read part 1 first…
Housing
After taxes, it’s the most important thing you’ll have to pay for. Run the numbers for living at home, but remember to compare the numbers for living at home to jobs that you’re likely to get from home. You may be able to get a job in your field in the city your parents live in… or you may not. Keep that in mind. Also, talk to your parents when trying to figure out this number. They, like many parents who’ve had children who return to the nest, may want to charge you rent to live at home!
My parents are fairly lenient about this, charging me only utilities right now. But I know from an older sibling who stayed in the nest a little too long that, eventually, my mom will charge rent!
For rent prices in other cities, a good place to research is Craigslist. You can quickly see pictures of the places, read long descriptions, and it costs nothing to search. And best of all, the site is uncluttered and much easier to use than most apartment search sites.
Definitely keep in mind the idea of a roommate. You, like me, are probably 100% sick of living with roommates at this point, but the money that can be saved is way too big to be ignored. If you can make living with roommates work for a few more years, you will dramatically increase your chances of supporting yourself well.
How Much Should You Spend on Housing? Well, a beach house right on the water in Malibu might sound like a great idea now, but how much is too much to pay? I’m a big fan of the 27% Rule: your housing expenses (including utilities and everything) should not exceed 27% of your gross income. So if you’ve locked down a $50,000/year job, you can afford to spend up to $13,500 per year on housing, or $1125 per month.
One more thing to keep in mind: the incidental costs of renting an apartment. You’ll need to pay utilities, so factor those into your expected rent costs, even if you have to estimate. Also, renters insurance — which you might not think you need, but you probably do. A good estimate for renters insurance is about $20/month. It could be less than that if you bundle it with your car insurance (it could even be free!), but you should assume the higher number for this exercise.
Fixed Expenses
The only truly fixed expenses I have are my student loans. I could get by using payphones and the free internet in libraries, but I can never escape my monthly student loan payments. Student loans are nasty debt — they don’t go away, not even if you declare bankruptcy. So they’re the first expense on the list after housing. Joy. If you don’t know what your student loan payments will be, now is the time to look it up. Don’t know how to find your student loans? Look up what you’ve borrowed in the National Student Loan Data System.
Car insurance is another fixed expense that, although I could sell my car and get rid of it, I’m not likely to. Zack and I looked at one apartment that gave credence to the idea (the Metro station was literally across the street!) but ultimately, it was not to be. So I’m living with the idea that, for at least the next year, I’ll have my car and have to pay the insurance on it. If you’re like me, you’re still under your parents car insurance plan, and you have no idea what it would cost to get your own plan.
There are many, many sites you can use to get insurance quotes. Just beware that with some sites, giving over your phone number and email address will result in getting phone calls and emails from insurance companies that want your business. This is good if you’re looking to get the insurance real soon, but if moving out is actually a ways off, this can be a pain. Try using an email address other than your main one to cut down on unwanted emails. I haven’t received any emails or phone calls after using CarInsurance.com to get a quote, but it only allowed me to look at one quote. You can also try Esurance.
We’ll return to the topic of can insurance at a later time, as I walk through the process of getting my own and moving to another state. It could be an ordeal!
Car Fuel and Maintenance: not exactly fixed expenses, but not exactly not fixed expenses either. If you’ve got a car, chances are you’re driving it at least a little. Depending on what you know about your future situation, you may be able to accurately estimate how much fuel you’ll use. What you can’t predict will be the future price of fuel. (Come on, a year ago, you had no idea gas would be the price it is now. Same goes for next year!) Since I like to do a worst-case-scenario, I took the amount I spent when I was commuting 60 miles a day and gas was near $4/gallon, and projected that out over a year. For maintenance, I use the average spent on repairs, oil changes, etc. over the last two years.
Food is a fixed expense in that you’ve always got to eat, but it’s also pretty variable. There’s a big, big difference between eating ramen noodles and going out for steak and happy hours. The more you eat at home, the more you’ll save, if you shop well. Try to eat healthy, though, to keep health care costs down! (See below.) Estimating a food budget might be tough if you haven’t been buying your own food from a grocery store and keeping track of those numbers. I hear “$40/week per person” thrown around a lot, and that’s as good a number as any if you just want to estimate.
Health Care costs are an expense that many people forget to factor into their calculations. I found out that I’m actually covered under my dad’s health insurance until I turn 26, so I only have to worry about little things, like copays and over-the-counter medication and band-aids. If health insurance is a benefit you’ll be receiving from work, find out if part of the cost will be deducted from your paycheck, and how much. If you won’t have any health insurance through work, you absolutely need to look into getting your own. You’re not Superman, and even if you were, he totally has at least Kryptonite coverage. If you need to get your own coverage, you can use eHealthInsurance to get some quotes for that.
Phone/Cell Phone: you’re on your own for this one. Some people only need a prepaid phone for emergencies, and some people need both a landline and an iPhone with unlimited everything. This is very much a “know thyself” category, so you’ll have to figure out how much you’re likely to spend. Just don’t forget things like “activation costs” if you’re moving off your parents’ plan, and if you’re getting a landline, you might need to factor in the cost of getting an actual phone! (I know I don’t have a landline phone sitting around anymore…)
Internet Access is like $40, unless you get something special (or the companies figure out how to do tiered pricing, in which case we’re all screwed), or it’s less if you’re splitting the cost with a roommate. It might be higher if you get cable internet and the company requires you to get a basic cable package. Ideally, this number should really be factored into “utilities” as a part of your housing costs.
Other Categories
I’ve covered all the expenses that I projected for my first year out of college, but it’s important to note that your life is totally different from mine. Some of my categories may not apply to you at all, and I’ve probably left out at least one category that’s vital for you to prepare for. This list is just meant to get you started and get you thinking about how much things will cost you every month.
Your homework: go through all of these categories and come up with your estimates. Figure out what else you need to include, and estimate that as well. Next time, we’ll start taking a look at the big picture: can you afford all of this, and will there be money left over to save for the goals in your life?
Comments or suggestions? Please leave a message in the comments! If you have a questions that you don’t want to share with everyone, you can always email me, as well.
You’re not Superman, and even if you were, he totally has at least Kryptonite coverage.
Wrong! That’s a pre-existing condition, so they wouldn’t cover him. 😀
Only because Lex Luthor owns the insurance company! 🙂
I’ve been living outside the nest for a few years now, and have found that it’s also important to include items like entertainment in the monthly budget. Even though they are not fixed expenses it helps to have an idea of the maximum amount of money you feel comfortable spending in those categories.
Suze Orman has a great budget calculator on her website: http://www.suzeorman.com. It will help you to think through every possible expense you may encounter and may wish to plan for.
Hi Emily! Nice to see you around here again 🙂
I’m going to include things like entertainment in the final part of this topic – part 3. It’s definitely an important category, but I have a, well, “different” take on what it should be lumped in with. You’ll see what I mean!
Suze’s calculators are definitely awesome! Sometimes it can help to look a budgeting software or spreadsheets, as well, just to see what categories other people typically include.
It’s sad to see your parents charge you to live at home. They should be happy that you are living with them, not charging you. Oh..some things you will only see in the US.
Fixed expenses are those that don’t change with the level of activity.
Thus, food, gas, anc car maintenance are completely variable.
If you don’t drive your car – you will not have o pay for gas or maintenance(based on mileage). Same with food.
That’s a very academic definition of fixed expenses, which is useful in some cases. However, in this case, I was dealing with “fixed” in the sense that I can’t choose not to pay them. I can’t very well get away with not eating, and it is almost guaranteed that I will have some sort of transportation cost (although it could well be metro instead of driving, I can’t be sure at this time). These are all just estimations, of course, but this definition of “fixed” is more useful to me in this exercise.
I use to leave away from home before. And Its really important to budget everything up. From food, apartment rents, transportation and lots of other expenses.