Having your own space is one of the cornerstones of independence. However, more people – specifically young adults aged 35 or under – are opting to rent rather than buy a home. In fact, this age group comprises 34.5% of all renters in the country. While renting is considerably more practical than buying a home outright, it still comes with monthly utility costs – and those can easily add up. It can be challenging to start building financial health with these expenses, but it is not impossible.
With proper planning and attention to detail, you can build a good financial standing as a renter. Here are four ways to do just that:
I. Compute Your Spending Money
Compute how much you earn from all sources of income, including full-time, part-time, or freelance work. And then figure out how much of your total income you can spend and how much need to go into your savings. Being financially healthy doesn't mean you need to deprive yourself.
Allow for some indulgences, as long as they're reasonable and add value to your life. It also helps to plot your earnings on a calendar, so you know when you are free to spend and when to budget more carefully.
II. Assess Your Monthly Expenses
Once you have your available income figured out, assess your monthly expenses. Prioritize rent, utilities, and fixed payables before accounting for bills, groceries, and extras such as clothing and entertainment. This will give you a more accurate idea of how much you spend which will prevent you from going over budget.
Start by recording your expenses throughout the month – you can even break it down to day-to-day spending. There are tools that make this process more convenient, such as apps, digital notes, or a good old pen and paper. Do this for several months to get a better idea of how your money is being spent. For expenses that differ from month to month, identifying the average amount would be a great option.
III. Consult a Professional
While budgeting can help and is a fairly straightforward way to handle finances, you can still miss some things. For instance, many people forget to take into account business expenses or tax deductions and end up with an unbalanced budget. In this case, it’s best to consult an accountant to help you manage your personal finances.
When looking for a financial specialist, make sure to check for their credentials and consult with someone who has adequate qualifications. Today this can range from traditional qualifications to newer online degrees offered by top establishments. Professionals who have online accounting degrees are just as qualified in tax planning, financial reporting, and coaching as those who took a more traditional course. Expanding your search criteria will open up a lot more candidates, especially as you are looking for personal financial advice rather than a commercial pursuit. The right professionals to consult for personal finances need not be certified; those who have completed even the basic programs will have the necessary skills to help you. CPAs are often more expensive and not necessary if you don't run a business, so take the cost and your specific needs into consideration when looking to consult an accountant.
IV. Prepare an Emergency Fund
One of the basics of planning finances when renting an apartment is that you should always dedicate a percentage to emergencies. Only after this can you figure out how much you can pay for the apartment. However, it’s also important to be flexible; keeping your savings and emergency fund intact shouldn't stop you from living in decent apartments and smaller complexes. Do plenty of research and rent comparisons to see what you can afford. Look closely at the contracts, too, and check for contingency agreements should these emergencies happen. You can build up your emergency fund over time, but be sure to start your emergency fund right away. Renting an apartment is a huge financial responsibility, but that doesn't mean that it's your only priority. Make sure to consider savings and emergency funds to be truly financially healthy.
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Written by Alicia Drake