Use this 9-point checklist to see if you are financially ready to move out!
According to Pew Research, nearly 52% of 18 – 29-year-olds live with their parents, a level not seen since the Great Depression!
Checklist To See If You Are Ready To Move Out
- Have enough cash on hand for upfront rental expenses
- You have consistent income and be able to prove it
- Have your debts under control
- Be prepared for new & unexpected expenses
- You are ready for roommates
- You can manage a budget
- You have emergency savings
- You are not sacrificing your retirement savings
- You are prepared to manage your bills
1) You Have Enough Cash On Hand For Upfront Rental Expenses
Moving out of your parent’s place is certainly not cheap. When you move into your first apartment, there are considerable expenses besides your monthly rent payment.
For starters, most landlords will require a security deposit, usually have a broker’s fee, and require the 1st month’s rent due upfront.
- Security Deposit: Usually 1.5X Monthly Rent ($1500 – $2,500)
- Broker’s Fee: Typically 1 Month Rent ($1,000 – $1675)
- 1st Month’s Rent ($1,000 – $1,675)
These expenses are commonly due BEFORE you are handed the keys. Therefore, you need to have roughly $3,500 to $6,000 cash on hand. However, if you plan to move to an expensive coastal city like New York City or San Francisco, you should multiply this range by 25%.
In addition, you are likely to have one-time expenses such as buying additional furniture, moving expenses e.g. renting a moving van, among other ancillary expenses. I recommend budgeting an additional $1000 for these potential expenses.
Therefore, you could be looking at $4,500 – $7,000 all-in.
2) You Have Consistent Income
Many landlords require proof of income either via a W2 or paystub. And to that end, some landlords only consider tenants if their yearly gross income is 2-3 times the rent being charged. However, this isn’t a hard and fast rule, and some tenants may be approved if they have good credit or apply with a co-signer,
And to that end, even if you have consistent income, it is important to have job stability. Ask yourself these 2 critical questions:
- Is my company performing well financially?
- Is my job performance meeting or exceeding expectations,
Another interesting point to consider is money made from the ‘gig-economy such as driving for Uber or delivering food for Doordash. While you can certainly earn some good side money through these mediums, some landlords may not consider these earnings when you are applying for an apartment.
3) You Have Your Debts Under Control
If you struggle to pay your student loans, have significant consumer debt, or generally have high reoccurring monthly expenses, you are likely not ready to make the move out of your parent’s house.
An excellent back-of-the-envelope approach to calculate whether or not you have your debts under control is to use the Debt-to-Income Ratio (DTI).
Including your potential new rent and estimated expenses, if your DTI is less than 36%, then it’s a good sign that you are ready to move out. Again, this ratio is simply a rule of thumb, and there are certainly nuances to a person’s financial situation.
4) You Are Prepared For New And Unexpected Expenses
When you live with your parents, there are reoccurring expenses you may have never even thought about—for example, utilities such as cable, electricity, gas, and water.
Furthermore, expenses for basics such as paper towels, toilet paper, cleaning supplies, miscellaneous cooking supplies, and apartment decorations. And these are just a few.
It would be wise to budget anywhere from $150 – $400 per month for these “miscellaneous expenses” Luckily, these expenses can be reduced if you are prepared to have roommates….
5) You Are Ready For Roommates
Nothing can be worse than your current roommates, right? Unless you can afford to rent a 1 bedroom or a studio, which is often 20 – 35% more expensive than having roommates, having roommates is often unavoidable. Being prepared to manage different personalities, lifestyles, and wants, and needs for common areas is pivotal to being prepared for your big move.
For example, one of your roommates may want to hire a cleaning person 2X a week whereas you did not budget for a cleaning person, you will need to come a middle ground. Or perhaps your roommates want a new couch from West Elm, but you are fine with used furniture, these are financial negotiations and discussions you will need to have with each other.
6) You Are Able To Manage A Budget
Whether it is an excel spreadsheet, a google doc, or an app like Personal Capital or Mint, if you simply cannot manage your income and spending and run short of money every month, this is a tell-tale sign you are not ready to move out.
When you live on your own, you are more likely to spend money eating out, going out to bars/restaurants, so it’s critical to track your spending, so you don’t end up in credit card debt!
If I had a nickel for every time I heard of someone going into credit card debt after leaving their parents….well, I’d have a lot of nickels.
7) You Have An Emergency Fund
In general, experts recommend having 3 – 6 months of expenses in your emergency fund. However, when coupled with your newfound expenses, it would be nearly impossible for the average young working professional ever to have 3 -6 months of expenses.
That said, I think using your emergency fund to pay for your security deposit and other 1-time expenses is appropriate. But, it’s critical to be able to replenish your emergency fund if you lose your job and you need cash to pay your rent.
8) You Are Not Sacrificing Your Retirement Investing
Not contributing enough or at all to your retirement account is the number one money mistake young adults make. If you are ready to move out and need to cut expenses, skimping on your retirement investing is NOT something you should do. If the only way you can afford to move out is by cutting your 401K or 403B investments, perhaps you should wait another year or two before moving out. Retirement investing is still the best way to become a millionaire, even with a regular 9 to 5.
9. You Are Prepared To Manage Your Own Bills
When you move out on your own, someone, whether it is you or your roommates needs to put utilities such as electric, gas, and cable in one’s name. And when that respective utility is in your name you are solely responsible for ensuring the bills are paid on time. If not, the company could send you to collections which could negatively impact your credit score.
The easiest way to manage this is simply to put your bills on auto-pay and request your to-be roommates Venmo you or send you money via Zelle. Many companies automatically send people to collections without any human intervention, so you can’t simply call them up and tell them you ‘forgot’ to pay.
The Bottom Line
As you can see, when you move out on your own, there are many expected and unexpected expenses that occur besides your monthly rent payment. While there is value in being independent, it’s not so much so in the sense that you should not go into debt or reduce your retirement investing so you can get your first apartment. Most 20-somethings will likely not have a huge cash pile to fall back on, but being prepared (financially) can at least lessen the blow if you are prepared when you move into your own apartment.
What was your financial situation like when you moved into your first apartment? Comment below and let the RWPF audience know!
