Beating Broke

Personal Finance from the Broke Perspective

Living Costs to Calculate Before You Sign a Lease

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You’ve found the perfect apartment or house to rent, and you’re ready to sign on the dotted line and move into your dream home. Not so fast! Before you sign the lease, make sure you’ve calculated all your living costs, including unexpected expenses, so that you aren’t blindsided with bills you didn’t plan for.

The only thing worse than not moving into that dream space would be losing it because you can’t afford to live there anymore. Here are the expenses you need to consider.

  1. Add-Ons

In addition to your rent, you’ll have a variety of add-on expenses, depending on the lease agreement. This section might include water, sewer, trash removal and heating and cooling costs. Many landlords cover items such as water and sewer because if these bills aren’t paid in some localities, a lien may be placed on the property.

Ask before you sign whether or not trash pickup is included. It typically is in apartments, but not as often in homes and smaller units. It’s rare for a rental to include your heating and cooling. If any of these items aren’t included, ask for a typical range per month so that you know what to expect.

  1. Parking

Not all rentals, especially if in the city, come with free parking. You’ll need to either make a decision to park on the street — which is challenging when events are going on and may make your car less safe — or pay for parking, which adds to your monthly expenses.

Ask your potential landlord what the deal is when you’re touring, and look up street parking rules (if applicable) to learn more about permits, street cleaning, and winter snow removal. You may even try to use this information to negotiate the overall cost of your rent or parking fees.

That one-bedroom that was $700 per month becomes $775 per month when you factor in the cost to pay for a nearby parking lot space. Trust me, I know the pain — it’s a sacrifice I ended up making to live in a downtown center.

  1. Insurance

Keep in mind that you’ll need renter’s insurance to cover your personal belongings. While most rentals do have insurance to cover the structure itself, it won’t cover the items you own. You must secure a separate policy. Rates will vary depending on the area where you live and how much coverage you need.

The average cost of renter’s insurance varies by state, but nationwide is about $187 per year. While that isn’t a huge amount of money, if you’re on an extremely tight budget, it could make or break you.

  1. Unplanned Expenses

Don’t forget to budget in a miscellaneous or emergency fund. Things will happen that you didn’t plan for. Perhaps you got a parking ticket because you didn’t realize you couldn’t park in that spot (I made this mistake too many times when I first moved). Maybe your car needed a repair unexpectedly.

A good rule of thumb for those getting their first apartment is to first save up a $1,000 to $2,000 emergency fund. This amount should cover most minor repair bills or the little things that happen that you didn’t plan for. Of course, you’ll also need all the typical deposits and first and last month’s rent on hand as well as money to pay deposits for utilities.

  1. Pets

If you have a pet or plan to get one, you should know that most apartments charge a pet deposit and small monthly fee to cover any damage potentially caused by that pet. Occasionally, you’ll find a rental that doesn’t charge this fee, but it’s rare.

You should also budget for damages your pet might cause. For example, if your cat claws up the carpet, you’ll want to get it repaired so that you don’t have to live with frayed carpeting the entire time you rent. Plus, it will be cheaper for you to make the repair than trust the landlord to fix the problem for a reasonable fee.

  1. Flakey Roommates

Perhaps you’re ready to move out, but you need a roommate in order to afford living on your own. The problem is that some roommates are flaky and don’t pay their share of the bills in a timely manner or sometimes ever.

If your name is on the lease, you should protect your living situation by having the other person sign an agreement. If they don’t pay their share, you may have to ask them to leave so that you can get a roommate who will share the bills. Prepare for this scenario by setting aside extra funds to cover your roommate’s portion for a couple of months if needed.

Before You Sign the Lease

These issues are all factors to consider before you sign the lease and take the leap into paying for that place you’ve always dreamed of. Renting can be a positive experience or a horrendous one, and planning ahead helps smooth the edges to make it as good as possible.

3 Strategies to Keep Track of Your Purchases To Save Money

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I’m a big fan of buying in advance for items that I know that I’ll need.  For years when my kids were little, I’d go out shopping a day or two after Halloween to buy my kids discounted Halloween costumes for the next year.  I never paid full price for a Halloween costume, and after Halloween was over and the kids were done with the costume, I sold the costumes on eBay for close to the price I paid.

That’s the way I like to shop, and I know it’s how many others shop, too.  After all, shopping this way is a smart strategy to stretch your dollars.

The problem is that as life gets busier as the kids grow older, I’ve found that sometimes I forget what I bought in advance.  Then, I desperately go out shopping for the item I need, not realizing I had already bought it in advance.

track purchases
Track Your Purchases

Case in point: Last year, right after Christmas, I bought my daughter a green ruffled dress on clearance at a steal for this year’s Christmas.  But, I forgot I bought that dress, and come November, I spent a lot of my time searching children’s resale stores for a dress that wasn’t unreasonably priced.  I had no luck.  A few weeks ago, I was digging through some storage tubs in my closet, and I found the dress.

So this year, one of my New Year’s resolutions is to implement a strategy to keep track of all of my deals.  Here are some techniques I plan to use:

Keep all of the deals in one location.  I have a corner of my walk in closet where I keep a large storage tub filled with discounted items I buy whenever I see a good sale on things I’ll need later.  I use these items for my kids’ birthday and Christmas presents.  I have added another tub to this one.  I’ll store other items like seasonal dresses in these tubs so I know everything I’ve bought in advance is in one location.

Keep a spreadsheet of gifts.  Even if you keep all of your items in one location, you don’t want to constantly have to rut through everything to find what you’re looking for.  Keeping a spreadsheet of the items you’ve bought in advance as well as who they are for will make it easy to see at a glance what items you have.  This can also prevent you from overspending and buying more than you need.

Use the libib app to track books.  I frequently give books as gifts.  We also homeschool, so when I see a good sale, I’ll buy books in advance for the next year or two of school.  The free app libib is a great way to keep track of your books.  Simply scan the barcode with your smartphone, and you can create an inventory, even categorizing by person you’ll be giving the book to or genre.  You choose.

Buying things you’ll need in advance is a great way to save money. . .as long as you don’t forget about what you’ve already bought!

Do you buy items in advance?  If so, how do you keep track of them?

 

Why the 50/30/20 Rule Doesn’t Always Work

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Most financial experts swear by the 50/30/20 Rule. According to them, you can purpose most of your income by following this relatively simple budgeting plan. While the 50/30/20 Rule works well for most people, there are times when you may want to adjust how you spend and save money.

Once you understand how the rule works, and when you should break it, you can put yourself on the path to financial success.

Understanding the 50/30/20 Rule

According to the 50/30/20 Rule, you should divide your post-tax income into three categories:

  • Living expenses and essentials
  • Flexible spending for unnecessary expenses
  • Savings and debt repayment

Once you have divided your income into these categories, you should make an effort to adjust how much money goes into each one. As the rule’s name suggests:

  • 50 percent should go to living expenses
  • 30 percent should go to flexible spending
  • 20 percent should go to savings and debt repayment

Why the 50/30/20 Rule Works for Most People

The 50/30/20 Rule works for most people because it encourages them to use their money wisely without forcing them to spend a lot of time and energy thinking about their budgets. You may want to spend your money in a smart way, but that doesn’t mean that you want to spend hours each week going over your expenses. The 50/30/20 Rule simplifies the process.

The 50/30/20 Rule also works well because it encourages you to set priorities. If you follow its guidelines, then you will invest money in your home, decrease high-interest debt, and save money for the future. Just as importantly, you won’t spend too much money on unnecessary expenses like going out to eat or seeing movies in a theater.

When the 50/30/20 Rule Doesn’t Work

The 50/30/20 Rule makes a lot of sense, so you should follow it if it’s feasible. The Rule, however, doesn’t work for everyone.

If you live in a city with a high cost of living, then you need to budget your money differently than people who live in cheaper towns. A recent study shows that the typical New York City household spends nearly two-thirds of its income on rent. Other cities where you need to spend more than 50 percent on housing and other essentials include:

  • San Francisco
  • Washington, D.C.
  • Honolulu
  • Oakland
  • San Jose
  • Boston
  • Los Angeles

If you live in one of these areas, then it’s unlikely that you can keep your essential living expenses below 50 percent of your income.

Adjusting the 50/30/20 Rule to Fit Your Life

Since your city’s cost of living affects how you spend your money, you should think about that when creating a household budget. If you spend 75 percent of your income on housing and other essential expenses, then you need to draw money away from the other two categories used in the 50/30/20 rule. Ideally, you will lower how much money you spend on non-essential expenses. That way, you can keep saving money and repaying debts so you have a secure financial future.

If you plan to buy a home, however, then you can feel confident taking some money from the savings category. You’ll essentially turn the money from savings into an investment by putting it toward the cost of your home, which you can sell at a higher price a couple of decades from now.

Budgeting is important, but it needs to fit into a realistic plan that considers your city’s cost of living. It’s a good idea to follow the 50/30/20 Rule as closely as possible, but the price of real estate may force you to make adjustments.