Having a roommate has been great (Taco Tuesdays, cheap split bills, epic parties) … but it’s definitely had its drawbacks (chore-wheel futility, monthly rent panic, noise made by someone other than you). It’s time. Time to get your own place, learn what it’s like to live alone, and try your hand at this adulting thing for real.
But you want to do this right. Meaning without breaking the bank and derailing your money for the future. So … how do you do that? Here’s our advice.
Build your financial foundation
Before you make a decision that could raise your housing costs, we recommend getting on solid ground with your money situation.
First, have a handle on what’s coming in, what’s going out, and how much of your current spending is on needs vs wants. We like the 50/30/20 rule as a high-level budgeting framework: 50% of your take-home pay to needs, 30% to wants, and 20% for saving and investing. (Here’s more on how the 50/30/20 rule works.)
Next, knock out credit card debt and any other debt with a high interest rate. That interest is burning a hole in your figurative pocket, and it’s just one more monthly payment that you could shed before you’re the sole rent-payer. (Here’s some info on making a plan to pay off debt.)
Then, give yourself a nice financial cushion: Build an emergency fund of three to six months’ take-home pay. (Here’s how and why.) And if you already have one, maybe bump it up by an additional month or two — now that you’re going to be the only one on the hook for rent, that safety net might be even more important than it was before.
Give yourself guardrails
OK, basics in place, let the search process begin for the perfect apartment (or condo or house or Airstream or yurt … you do you).
Rather than jumping in head-first with a vague idea of how much rentals cost, spend some time deciding exactly how much you can comfortably afford. A good guideline is to try to limit your rent payment to 30% of your gross pay (before taxes and withholdings). So if you make $54,000 a year ($4,500 a month), then you want to aim for a rent payment of $1,350 or less.
(Cue hysterical laughter if you live in NYC, San Francisco, or other metro area.)
If 30% is unrealistic where you live, just understand how your rent will impact your budget so that you can leave yourself a realistic amount of wiggle room — and keep in mind that your new monthly housing costs will also include higher single-person utility bills and renter’s insurance premiums.
Also, it might be the norm in your real estate market for landlords to require you to have a certain debt-to-income ratio, credit score, or rent-to-income ratio (a common one in NYC is that your income must be 40x your rent payment, which — heyyy — just so happens to be the same math as the 30% of your gross pay we mentioned above). Research those things ahead of time so you know what you’re looking at.
Our advice is to keep your housing costs as low as you can. If something unexpected happens to your income ... the lower your fixed costs, the easier it will be for you to get through it financially. And housing is probably going to be your biggest fixed cost. (That emergency fund comes in handy here too.)
Save up for moving costs
It’s not just the monthly rent: Moving can require a huge cash outlay. Here at Ellevest, we’re super against credit card debt if at all possible, so we’d urge you to save up for this cost ahead of time, if you can.
In less urban areas, you may simply need to give the landlord one month’s amount of rent as a security deposit. In urban markets, though, you’re likely to need much more. For example, in NYC, you might need some or all of the following:
A fee for the landlord to pull your credit report
A broker fee (typically one month’s rent or up to 15% of the total rent for one year)
A security deposit (maybe one month’s rent, maybe a bit more, maybe a lot more if you have pets)
First month’s rent payment up front
Last month’s rent payment up front
Added together, that could be five times your monthly rent payment that you need to lay out in cash up front. Yikes.
Oh, and be prepared for the fact that some landlords might also ask for proof of income or employment, a letter of recommendation, and / or references.
Try to avoid using a co-signer
If you don’t have much credit or your credit score is not-so-hot, it might be tricky to find an apartment without using a co-signer: someone who agrees to be responsible for your rent if you can’t pay. (They’re also sometimes called “apartment guarantors.”)
Often, your co-signer will be a parent. If your parent is willing and able to help you, that’s great … but note that she can end up on the hook, and it can really damage her credit. Nobody goes into a lease planning to miss a rent payment, but it’s not impossible — life happens. (And if you have a friend who’s a co-signer and that happens? Well, your parents may feel they have to forgive you. Friends don’t.) If you aren’t able to get a lease on your own, it may be a better money move for you to stick it out with the roommate a little longer.
So that’s the plan: foundation, guardrails, savings, and a lease of your own. If you’ve got that down, pop the champers and send out the housewarming save-the-dates — it’s time!
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