How to Budget For Your First Apartment (With Template)
If budget first apartment template is on your radar, this short guide cuts through the noise. Here is what is worth knowing, and how to put it to work today.
Key Takeaways
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- This guide walks you through how to create a budget for your first apartment. You’ll use a template via Google Sheets (also downloadab...
This guide walks you through how to create a budget for your first apartment.
You’ll use a template via Google Sheets (also downloadable as an Excel file) to calculate how much you can pay in rent, plus make sure other expenses can comfortably fit within your income.
To get started, open the template here and click “Make a Copy” to save a customizable version. To store it on your computer, select File > Download and save in your preferred format.
Table of Contents
ToggleStep #1: Determine Your Maximum Rent
When budgeting for your first apartment, figuring out how much rent you can afford comes first.
Paying high housing costs relative to your income is the #1 mistake you want to avoid.
When you have to stretch your budget just to make rent, you leave little for other financial priorities, such as building an emergency fund, saving, or even going out with friends.
An key rule of thumb to know when determining your affordable rent range is the 28/36 rule.
Banks use this rule to determine how expensive of a house you can afford to purchase.
The rule states that your mortgage payment, including taxes and insurance, should not exceed 28% of your gross monthly income.
The rule also recommends that your housing plus debt payments not exceed 36% of your gross income. This ensures you’re not overwhelmed by debt and housing costs combined.
While we’re not working with mortgage payments, the same rule can easily be applied to rent:
Summary of 28/36 Rule% of gross monthly incomeWhat it goes towardsUp to 28%Housing costsUp to 36%Total debt payments, including housing costsTo see how much rent you can comfortably afford based on the 28/36 rule, here are the steps you’ll take in the first tab of the the budgeting template:
Step 1: Determine your gross monthly income.
- For fixed salaries, use your pre-tax monthly income.
- For variable incomes, calculate your monthly average by totaling your gross income for the past 12 months and dividing that figure by 12.
Step 2: Calculate your total monthly debt payments.
- Include all monthly debt payments, such as car, student loans, and personal loans
- For credit card debt, incorporate the amount you realistically want to pay each month, not just the minimum payment. For example, if your minimum payment is $200 but you want to pay off $500 a month to get rid of debt fast, use $500 per month.
Step 3: Determine your debt-to-income ratio.
- Divide your total monthly debt payments by your gross monthly income and multiply that figure by 100. For example: ($500/$5,000) x 100 = 10%.
- This percentage represents the portion of your income allocated toward debt.
Step 4: Calculate the maximum percentage you can allocate towards rent.
- Subtract your debt-to-income ratio from 36%.
- This percentage represents the maximum portion of your income you can afford for rent. (See example below.)
Step 5: Determine your affordable rent range.
- Multiply your gross monthly income by the maximum percentage you can allocate for rent.
- The resulting amount represents the maximum rent you can comfortably afford.
For example, if your gross monthly income is $5,000 and your total monthly debt payments are $500, your debt-to-income ratio is 10%. This means you can afford to spend up to 26% of your income on rent.
Why not 28%? The 28% limit is the maximum amount that can be allocated to housing costs alone, while the 36% limit includes both housing and debt payments. Therefore, if you have more than an 8% debt-to-income ratio not including housing, your maximum rent will be lower than 28% of your income.
Multiplying $5,000 by 26% gives you an affordable rent range of $1,300.
Debt to income ratio% of income to spend on rent0%28%5%28%10%26%15%21%20%16%Some common questions about the process are:
- Can you exceed 28% when you don’t have any debt? Maybe, but not by much. A key question is whether you’ll have any debt when your apartment lease ends. If you expect to add debt, such as a car payment, it’s best to factor that into the equation now.
- Do costs like renters insurance and other potential fees like parking, pet, and/or building fees factor into the equation? You’ll want to include these once you know them, as they vary depending on your choice of apartment. A basic renters insurance policy will cost around $20 per month, and fees vary highly between different apartment complexes.
- What if your debt-to-income ratio is high, such as 20%? Does that really mean you can’t afford to pay more than 16% of your gross monthly income towards rent? If your debt-to-income ratio is high and you commit to a large expense like rent, it will tie up all your income into fixed costs. This is a situation you want to avoid as much as possible, because it will put a strain on your finances each and every month.
- What if you live in a high-cost area? The key is to understand the opportunity costs involved. For instance, spending 33% of your income on rent might mean sacrificing other financial goals, such as maximizing your 401(K) contributions or saving for a vacation. It’s key to recognize these trade-offs. So acknowledge that although higher rent may be necessary in some cases, it will require compromises in other areas.
Step #2: Creating a Projected Monthly Budget
Now that you know the maximum you can afford to spend on rent, the next step is to create a budget for living month-to-month in the apartment.
The goal is to get a high-level overview of your financial situation once you’ve moved in, and to ensure you still have enough for your other financial priorities.
Without any experience living on your own, don’t expect perfection
Final Thoughts
The bottom line: a little research on budget first apartment template goes a long way. Compare your options, watch for seasonal offers, and never pay full price when a better deal is one click away.
Originally published at thewaystowealth.com.
R.J. Weiss
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