How to Budget for Living on Your Own

Calculate a budget for living on your own with this guide

Chapter 1 covered a few financial considerations, but how much money do you really need to move out? What should your budget look like? What expenses could you be overlooking during the planning process? Are you prepared for living on your own budget?

If you have questions like these, this chapter is an excellent starting point.

Expenses to Consider

When planning to move out on your own, it’s easy to focus on the big numbers: the cost of rent, utilities and food. But, living on your own involves many more expenses. Actual expenditures for young adults can help give you a baseline. While planning, be sure to consider your own living habits and remember that it’s possible to save in many areas.

To start with understanding expenses, the Census Bureau’s average expenditures by age group chart from 2014 may provide some insight:

Remember, these numbers represent the national average in 2014, the latest information that’s available, for an entire year’s worth of expenses and are not comprehensive. Seeing the average expenditures of others your age, however, can be a good way to get an idea of what a realistic cost of living will be for you once you’re out on your own.

To create your own budget, consider the 50/20/30 rule, which provides a method for budgeting for essentials, savings and personal use. Here’s how it breaks down:

  1. Essentials

Plan to set about 50% of your income aside for essentials when considering how you can afford living alone. These expenses must be paid regardless of your situation and are similar for each person. They include:

  • Housing (rent or mortgage)
  • Groceries
  • Transportation (gas, auto repairs)
  • Utilities
  • Loans (student, auto)

  1. Savings

Of your take-home income, 20% should be set aside for savings in your budget. In addition to being saved, this money could help pay down debt. The idea is to start preparing for your future plans, retirement and unexpected life events.

  1. Personal Expenses

After covering your necessary expenses and savings, 30% of your income can be reserved for personal use — the activities you either require or desire. These could include:

  • Gym memberships
  • Weekend getaways
  • Dinner out with friends
  • Entertainment
  • Purchases that aren’t “needs”

With the 50/20/30 rule, there’s room to make changes and improvements based on your lifestyle and requirements.

Another tool that may be helpful in creating your budget is the Economic Policy Institute’s Family Budget Calculator. While this tool doesn’t create a budget for you, it does provide average expenses for your local region, so you’ll have an idea of how much you might expect to spend in your area.

After you have a better understanding of your savings goals and average expenditures, it’s time to start creating your personal budget. Our budgeting worksheet is designed to break down expenses by specific categories, discussed in more detail below.

When starting the budgeting process, be sure to think about the unexpected. As a renter, major appliance repairs should be covered under your rental agreement, but unexpected expenses could still arise. These could include vehicle repairs, injuries, job changes, layoffs and more. You want to be prepared to comfortably cover situations like this as well.

How to Make a Budget

You’ve considered the average expenses for your age group and area, and you’ve printed off your budgeting worksheet. You’re ready to take an important step forward!

Start by being as detailed as possible. By breaking your budget down into specific categories like those listed on the worksheet, you’ll be more prepared to watch your spending in each area, and adjust if you need to save.

While it may be tempting, especially in the beginning, to limit your spending or take drastic measures, it’s important to remain realistic. For example, if you decide to eliminate buying lunch out while at work, but know your co-workers will persuade you to go, it’s better to budget for it. Over-budgeting is always better than under-budgeting.

As you create your money management plan, remember the 50/20/30 rule. Be honest about your income and look at the past few months of spending in each area to get started. In the beginning, you may have to return to your budget regularly to adjust.

Once you’ve created your budget and feel comfortable putting your plan into action, do your best to stick to it. Your budget will only be useful if you use it daily to make decisions. At the end of each month, enter amounts spent in each category and pay attention to areas that could use adjustments.

Be honest and diligent in determining how you’re doing. Figure out what tracking method will work best for you. For some, it may be easier to track spending using cash only. Each month, take out just enough cash to cover your spending plan and save your receipts to keep the process simple. For others, carrying cash is too tempting and it’s easier to electronically track purchases with a debit or credit card. Either approach is fine, but if you choose the electronic route, make sure you’re not carrying a balance on your credit card month to month and accruing unnecessary interest on your purchases.

Your budget will take some time to adjust to, and that’s okay. Financial responsibility is a process. Be patient and honest during the process. Over time, it will become second nature.

The Importance of an Emergency Fund

As mentioned, we recommend setting aside three to six months’ worth of living expenses to protect yourself, should the unexpected happen. This should be one of your first savings initiatives, following the budgeting rules outlined above.

How do you build an emergency fund?

In addition to setting aside 20% of your take-home income, at a basic level, building an emergency fund begins with spending less and looking for additional income options. These may include:

  • Getting a second or side job. Jobs such as babysitting, waiting tables, working at a retail store, or freelance writing may be viable options.
  • Cutting clutter. Clean out your closet and any areas you may have belongings stored. Sell items and clothes you have no need for, and deposit the money into your savings. Look online for opportunities to sell used items and clothing, or use Facebook Marketplace. You might be surprised by who may be interested in belongings you no longer want or need.
  • Reducing unnecessary costs. Could you walk or bike to work? Are you willing to cut cable and look at other streaming options? You may be surprised by how quickly small costs can add up. According to BLOOMBERG Business Week, the average cable subscriber pays $95.97 per month for 194 channels, but only watches 17 of them. At $.50 a channel actual cost, they’re paying $5.65 per channel watched. Less expensive options continue to become available. Instead of a cable subscription, search for streaming options that require only an Internet connection. Ask friends which they prefer.

  • Spending smart. Pay attention to retailer’s savings tools and coupons, and begin meal planning based on what you find.
  • Starting a savings challenge. Try depositing a small amount each day from your checking account into your savings account. It’s amazing how quickly $1 a day can add up. If you’re looking for some help, we make it easy to swap out spending for saving using our PSECU Savings app.

Budgeting is essential for preparing to move out on your own. It could make the process easier, while ensuring you’re able to continue to save, even when extra expenses start to arise. Have questions about setting up a savings account? We’d love to point you in the right direction or provide answers that could be helpful. Contact PSECU, or become a member today.

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