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.
Step #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 important 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 buy.
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 income | What it goes towards |
| Up to 28% | Housing costs |
| Up to 36% | Total debt payments, including housing costs |
To 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 rent |
| 0% | 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 important 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 here.
Managing your money is a skill that takes practice. Over time, you’ll refine your budget estimates as you better understand your lifestyle preferences and spending patterns.
What’s important for now is ensuring that you have realistic expectations of what it costs to live on your own. And beyond that, it’s important to understand what you likely can and can’t afford.
For beginners, while there are different types of budgets, one of the simplest and most effective is the 50/30/20 budget.
This budget strategy will help you allocate your monthly net income (the amount you take home after taxes) into three main categories:
- 50% for needs. This includes all your essential expenses, including your calculated maximum rent, groceries, utilities and transportation. The aim is to ensure these necessities do not exceed 50% of your net income.
- 30% for wants. This category covers non-essential expenses that enhance your lifestyle, like gym memberships, dining out, entertainment and travel.
- 20% for savings and debt repayment. This portion of your income should be allocated to savings, investments and paying off debts.
Remember, the 50/30/20 rule is just a guideline. You’ll need to adjust these percentages based on your specific situation. But it’s important to ensure your expected monthly living costs, including your monthly rent, are reasonable compared to your income.
Fill in your expected expenses in the following categories using the budget template. The step to do so is located under the second tab.
Please adjust the specific expenses based on your unique situation.
While you work through the spreadsheet and categorize your expenses, here are a few things to keep in mind:
- If your needs exceed the recommended amount (50%), that isn’t something to take lightly. I can’t stress enough how difficult it is when essential living expenses tie up the majority of your income. While it’s OK to go slightly over 50%, as long as you understand that your wants and savings will have to take a hit, it becomes a red flag when needs take up a large percentage of your income. If that’s the case, lowering your maximum monthly rent may be best.
- Know that things will change. This is your first budget, so don’t expect perfection. A good tip is to download a good budgeting app and update your expected expenses once a month once you’re moved in.
- Budgeting isn’t just about setting limits. It’s also about learning how to prioritize your income in a way that allocates more to the things that are actually important to you. The goal here is to make sure you leave room for what makes you happy.
Step #3: Budget and Save For One-Time Fees
Moving into your first apartment comes with a range of expenses that can quickly deplete your savings if you’re not prepared.
To avoid financial strain, it’s important to have set aside this money before moving in.
Here are the most common expenses you’ll need to save for:
- Security deposit. This is the big one. Most landlords require a security deposit, which is typically equal to one or two months’ rent. Keep in mind, this is in addition to paying your first month’s rent.
- Moving expenses. Moving costs can vary depending on the distance you’re moving, the size of your belongings, and whether you hire professional movers or opt for DIY. Factor in costs for packing materials, rental trucks or vans, fuel and labor.
- Furnishings. If you’re starting from scratch, furnishing your apartment can be a significant expense. Consider essential items like beds, dressers, sofas, tables and chairs. Prioritize the necessities and gradually add more as your budget allows. You don’t have to get it all at once.
- Basic household items. These include kitchenware, utensils, cookware, linens, towels and cleaning supplies. While these may seem like small expenses, they can add up quickly.
The goal is to have this money set aside upfront, or in some cases — like furnishings, where you don’t need everything upfront — adjust the budget you created in Step #2.
Here’s what this looks like inside the template:
The mistake you’re trying to avoid here is running out of savings prior to moving in. In our example, after paying for upfront costs, we’re left with just $500 of savings.
Ideally, you should have set aside three months of living expenses, known as an emergency fund, of cash at all times. This will help cover unexpected costs, such as medical care, car repairs, or emergency travel to visit family in a time of need.
Of course, I realize that’s a lot of money, and not everyone has the luxury of living rent free in their parents’ basement to build up their savings.
However, it’s important to confront the reality of your financial situation and expected moving expenses.
And if you’re going to go below three months savings for moving expenses, you’ll need to prioritize rebuilding your emergency fund aggressively.
Final Thoughts on Budgeting For Your First Apartment
The choices you make during this formative period tend to set the tone for your future financial well-being.
Consider the example of incorporating long-term investing into your budget right from the start. By making this a habit early on, you’ll find it much easier to maintain this practice over time.
The same can be said for living below your means. You want to identify as someone who is constantly spending less than they earn.
Conversely, if you fall into a pattern of living paycheck to paycheck, breaking out of that cycle becomes significantly more challenging.
While the process of creating a comprehensive budget may seem daunting, the steps outlined here are carefully structured to help you establish a solid financial plan for both the short and long term. By following these guidelines, you’ll be well-equipped to achieve your financial goals and secure a stable financial future.
