The true cost of renting a place
So you�re thinking about renting your own place. There are lots of decisions to make,
like how close do you want to be to work or to your friends, or to your family? How much
space do you need? Are you going to live alone or with roommates?
Once you have a sense of where you want to live and how you want to live, it�s time
to start thinking about what renting a place will actually cost you and what you can afford.
Now, the two biggest costs you�ll have are going to be your monthly expenses and your
move-in costs.
To start, you�ll want to figure out your monthly expenses, which will help you determine
what you can afford to rent. Then we�ll take a look at what your move-in expenses
might be in another video.
So first you need to decide what your budget will be. A decent guideline for figuring out
what you can afford is something called the �thirty percent rule.� Basically, you
take thirty percent of your gross income � that is, your entire income, before taxes - and
allocate that to your general housing expenses � that�s not just the rent, it�s also
your utilities, insurance and other costs associated with your home. It is set at thirty
percent so you can still have some money left over to cover your other expenses and hopefully
even save something while you�re at it.
Now, everyone�s situation is different. For instance, if you have student loans or
credit card debt to pay off, you might want to spend less on your housing. Or, if you
live in a city where rents are higher, you might be able to afford more because you can
use public transportation and won�t have the typical costs that come with a car.
But for this example, let�s stick to thirty percent. So, say we�re looking at an annual
salary of forty thousand dollars, in this case, your budget will be forty thousand times
point three, divided by twelve is one thousand per month.
Now, this doesn�t mean you are going to go right out and look at rentals listed at
a thousand a month�or that really nice place you see for ten fifty. First, let�s think
about some other monthly expenses you�ll have in addition to your rent.
The biggest monthly expenses you�re probably going to have are utilities. That�s your
electric, gas, oil, or other fuels, water, and sewer bills.
In some cases the landlord pays for some utilities, but not others. What you�re responsible
for and what the landlord is responsible for should be spelled out in the lease.
Electric bills can vary dramatically. The price of electricity fluctuates throughout
the year, or even the time of day. But, for this exercise, let�s say this averages out
to ninety dollars a month over the course of a year.
Your fuel bill (typically your gas or oil) can also vary dramatically throughout the
year� but for now, we�ll estimate it to be about ninety dollars a month as well.
And if you have to pay for water, that bill might be around thirty dollars a month.
You might also want to think about getting renter�s insurance. If there�s a fire,
a bad leak, or a burglary, rental insurance can cover the cost of your belongings, and
it can be as little as fifteen dollars a month.
Keep in mind, these are all general estimates�your local utility or insurance companies are usually
the most accurate source for this information if you want to figure it out yourself.
And, these are just a few of the basic monthly costs you might encounter with a rental. You
might run into extra charges for other amenities as well.
And again, depending on the lease agreement, you could even be responsible for additional
things - like home repairs.
In any case, adding this up gives us a total of two twenty five for general housing expenses.
So, we want to take this and subtract it from the original budget of one thousand, which
leaves seven hundred seventy five dollars for rent, which may or may not be enough.
If it�s too low, one possibility would be splitting your housing expenses with roommates,
leaving you more to spend on rent.
So, you can see there are a variety of expenses you may want to think about in addition to
the rent. Including the cost of just getting a new place which we�ll cover in another
video.
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