Ready To Move Out? How To Make It Happen In A Year Or Less
August 07, 2017I recently spoke with, Dylan [not his real name], a 25-year old employee, when he called our Financial Helpline with a dilemma: he lived with his parents and siblings, and he really wanted to move out on his own. However, he was living paycheck to paycheck, paying his bills on time but spending whatever was left on enjoying life now. He liked his life, but he was starting to have a nagging feeling that it was time to get his own place. How much was it really going to cost, and how could he make it happen?
Step One: Follow the Money
When I asked him where he thought he was spending his money now, Dylan shared that he had monthly bills for his car, insurance, gas, parking, cell phone, gym membership and student loans, as well as contributing to family groceries. He had a spreadsheet in Excel where he figured out how much money he had remaining after paying bills every month. He generally spent whatever was left over, trying not to go in the red but otherwise not worrying about it.
Was it worth it to cut some expenses so he could get in his own place? The first step is to figure out what could be eliminated. I encouraged Dylan to track his daily expenses carefully to see where the money was going. We walked through different ways to do this, including using a smartphone app, the paper/pencil method, or entering them in a spreadsheet. Dylan already had Mint on his phone, but hadn’t set it up fully to easily track expenses, so he wanted to start with that method. I pointed him to Mint’s instructional videos on YouTube, and suggested a few to watch to make set up easier.
Step Two: Calculate the Costs of Renting
The next step was figuring out how much Dylan could afford to pay in housing costs, as well as how much it would take to rent an apartment. His paycheck was around $1,200 every two weeks after taxes, insurance and 401(k), so most months he was bringing home $2,400. If he spent no more than 35 percent of his take-home on rent and utilities, that would give him a total housing budget of $840. He thought he would be able to get a small studio apartment for $800, or share a 2 BR with a friend for that amount.
So what would it take to move in?
He would need to come up with a security deposit of one month’s rent and the first month’s rent (about $1,600 total) when he signed a lease. Plus, if utilities were not included in the rent, since he had never had utilities in his name he may need to put down deposits for electricity and gas ($200). His parents had promised to give him some used furniture, but he would still need to get some household goods like dishes and a trash can, so we figured that was another $200. Rent on a do-it-yourself moving truck was $100. Altogether, he’d need to save at least $2,100 to move into his own place.
Step Three: Set Daily Savings Goals
I encouraged Dylan to set a daily savings goal. That would make it easier to say no to certain expenses. If he wanted to move out in three months, he’d need to save $705 per month or about $24 per day (see calculation here). If he wanted to get his own place in six months, he’d need to $355 per month or about $12 per day (see calculation here). If he took the long route and saved for a year, he’d need to save $180 per month or about $6 per day (see calculation here). Any of these goals seemed doable, given how low his current “must pay” bills were, so it depended on how much he was willing to make changes in his lifestyle in order to save.
Step Four: Pay Yourself First
If Dylan didn’t have easy access to those funds, he would be less likely to spend them. He had the capacity at work to have direct deposit to multiple accounts from his paycheck, so he decided to set up a savings account at his bank and have $180 per paycheck deposited automatically in it. That way, he concluded, he wouldn’t miss the savings so much. I encouraged him to find small daily expenses he could refuse regularly, such as the ones suggested in my blog post on ways to save money without changing your lifestyle.
Step Five: Check Your Credit
Dylan already had student loans and a car loan in his name and was making regular payments, so he had some credit history. That’s good news, as it’s harder to get a lease if you don’t have any credit information at all on your record. However, he didn’t know his credit score, so I encouraged him to check his actual credit reports online for free via annualcreditreport.com or to check his estimated score using Credit Karma or Credit Sesame.
The Middle Path
Dylan opted to try the six month savings plan. We set a time to check in two months from now for another coaching call, to see how it was going and if the $12 per day plan was realistic. If he implements his plan, he’ll be in his own place by next year!
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