This time of year, a lot of soon-to-be grads are probably thinking about moving out on their own. This is going to mean taking responsibility of your own finances- all the expenses, budgeting and saving. It also means securing an income. But how much money does it actually take to live on your own? Of course, anyone can easily blow through $100,000 in a year. But what’s a reasonable minimum for a reasonably comfortable lifestyle?
Everyone’s situation is a little different. Location is a huge variable. However, the beauty of starting off fresh on your own is that you don’t have many (if any) established expenses. You get to build your lifestyle from the ground up. Essentially, you’re going to build a budget. You’re going to itemize your anticipated expenses and ensure that they are less than your anticipated income. Doing this before you move out on your own is important, since it keeps you from moving into a situation that you can’t financially support. Remember, we’re looking at take home pay here- what’s left after taxes, insurance, retirement savings and anything else is taken out.
A living space is probably going to be the single biggest expense on your budget, so choose wisely! At this point, you’re probably looking at renting. Don’t buy unless if you’re fairly certain you’re not going to have to move in the near future (either relocating or upsizing for a growing family) and you have a significant amount of money for a down-payment. Don’t fret tho- there are a lot of upsides to renting.
Financially, smaller is better. Not only does this mean lower rent, but also lower heating and cooling costs. Consider living in a studio apartment. Check out this post on how comfortable studio life can be!
The numbers here vary so much by location, with a small apartment ranging anywhere from $400-$1800/ month. However, for most of the country, less than $800 will get you something reasonable and cover utilities.
Like it or not, you’re going to have to eat. If you’re not careful and intentional in this area, you’re going to end up going out to eat every day for lunch and every night for supper, which will cost you an arm and a leg. But you don’t have to survive on ramen either.
If you haven’t learned how to cook yet, ask your mom (or dad), or just learn by trial and error. Hopefully you don’t burn down the house. There are tons of recipes out there. A great cooking blog is Budget Bytes. She’s also got pages on kitchen and cooking basics, if you need to check those out. Once you know how to cook, learn to make a meal plan and grocery shop efficiently. Oh, and don’t be afraid to brown bag your lunch. Nothing wrong with PB&J. Or leftovers.
If you stick to these principles, you can keep your grocery bill down to $40/week (if you’re single). Maybe a little less if you’re in the Midwest, maybe a little more if you’re in NYC. This breaks down to $170/month.
You need some way to get from point A to point B. It is possible to live without a car in the right circumstances, which will keep this category way down. If you live in a big city with a great public transportation network, look into a monthly or yearly transit pass. Some cities offer great bargains on these passes! Or if you can live close to your work and a grocery store, you might be able to get by with just walking and biking. The savings will more than cover the occasional Uber ride or car rental (assuming that you keep these occasional).
However, in many circumstances, going car-less is not a viable option. If you’re serious about keeping your costs to a minimum, don’t finance your car. If you don’t have a car yet, hustle and save up $1000 and buy a clunker for the time being.
You will have to maintain your car. And if it’s an older clunker, you will have to spend a little more on maintenance (don’t worry, these costs are offset by low depreciation). Budgeting $100 per month on maintenance is a good place to start. Remember, if you don’t spend that $100 one month, stash it away in a maintenance fund. Next month you might have a $200 or $500 repair.
Your old clunker isn’t going to last forever, so make sure you’re also stashing money in a car savings fund. I’d say $50/month is the bare minimum. This gets you a replacement $1000 clunker every 2 years. And the longer you keep your current car running, the more you can spend on your next car. Otherwise, increase the amount you’re stashing in your savings fund.
If you’re under 25, you’re going to have high car insurance rates- probably in the neighborhood of another $100 per month. If you have the discipline to stash this $100 in a savings account each month, you can usually get a discount by paying every 6 months or a year. Assuming you’re driving an old clunker, just buy the minimum insurance allowed by law. If you total it, just buy a new one with your car savings fund.
So between insurance, replacement, and maintenance, owning a car easily costs $250 per month, if not more. And then throw another $50-$200 per month in gas expenses, depending on how far you have to drive. Now you’re looking at over $450 per month. If you blew off not owning a car earlier, you may want to reconsider. It may even be worth spending a little more on housing to be in a location where you can walk or bike everywhere.
Phone and Internet
A phone isn’t necessarily a must-have, but for the rock-bottom prices you can get a phone for, they’re worth it for the benefits. However, don’t get suckered into paying $50+ per month for a cell phone plan by the big name carriers. Smaller MVNOs offer the same quality service on the same networks for far less. Check out Total Wireless or Republic Wireless for smart phone plans under $30/month. For more, read out this post on MVNOs.
Internet is a different story. There’s a lot less competition for internet service providers. In some areas you can get good internet service for $20/month. Other places it can cost double that or more. However, depending on your usage, you might be able to get by just using your public library. A lot of libraries are great places to hang out for several hours!
The Big Question Mark- Health Insurance
One way or another, you should have health insurance- even if it’s just a ‘catastrophic plan’ with a high deductible. As it stands now, your options are finding a job that provides group coverage, staying on your parent’s health insurance, a healthcare sharing co-op, government subsidized healthcare of some sort, or private health insurance. However, one way or another your health insurance can cost you anywhere from $0-$500+ per month.
A good scenario is to find a job that pays the bulk of your health insurance premium, often leaving you on the hook for $150 or less per month. If your employer doesn’t offer health insurance, you’ll have to shop your other options. As a young adult, however, you have the advantage of being cheaper to insure. If your parents’ health insurance is not an option, you should at least be able to find minimum coverage for less than $300/month. Check out this post for more info on your health insurance options.
An Even Bigger Question Mark- Out of Pocket Health Costs
With your health insurance, once you’ve nailed down where you’re getting insurance from, the premiums are predictable. However, most insurance requires you to share in your health care costs. This is where budgeting gets tricky. Especially if you’re young and in good health, you probably don’t anticipate being hospitalized or having any other serious incidents. But surprises happen. You might pick up a particular nasty strain of the flu, or end up in a bad accident. Medical emergencies are unpredictable, so you might as well plan for them.
How you budget and how much you budget for health costs varies from person to person and depends on your health insurance coverage. If you have a low deductible and out-of-pocket max, you can get by with budgeting a lot less. Some people like to budget for the worst case scenario, and stash up to their out-of-pocket max in an emergency fund or HSA (taken directly out of your paycheck). Others are comfortable just maintaining a $1000 emergency fund.
My advice is to save as much as possible (there’s a reason I saved this section for last), but at least $100/month. You’ll never regret over-planning. You might regret under-planning. and if you’re eligible for an HSA, MAX IT OUT! It’s one of the best tax shelters available (it even beats Caribbean bank accounts). Although you can only use that money for medical expenses, you are allowed to invest it and it carries forward year after year. If nothing else, you can use it on nursing home care when you’re 90.
Bringing It All Together
So those are your necessities. Although everyone’s budget is going to be different, it likely looks something like this:
- Rent: $800
- Food: $170
- Car Maintenance: $100
- Car Savings: $50
- Car Insurance: $100
- Gas: $100
- Phone: $30
- Internet $30
- Total: $1380/month
There are a lot of assumptions built in. The above includes vehicle expenses, which, depending on your situation, may not actually be a necessary expense as discussed earlier. Again, eliminating these reduces your necessary expenses by quite a bit! You also could cut your individual housing expenses significantly by picking up a room-mate (or a spouse).
Our budget also assumes that your health insurance and health savings (potentially another several hundred) is taken directly out of your paycheck.
It also doesn’t include retirement savings, which although important, is not a basic necessity. Also, the easiest way to save for retirement is often to have it deducted from your paycheck into an employer sponsored 401k. This way, you wouldn’t have to budget for it from your take-home pay.
Finally, our budget doesn’t include anything allotted for ‘fun, miscellaneous, and discretionary’ expenses. While you don’t have to budget a lot here, it is important to budget something here. Not only will you suffer from ‘budget burnout’ if you don’t budget for fun, you will also have occasional necessary expenses (such as clothing) that come from here.
Remember, your budget isn’t going to look exactly like this one. Yours may end up being a little lower, or may have to be a little higher. But hopefully you can use this budget as a guideline. Tweak it to meet your circumstances and priorities.
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- While I do strive to only write accurate information and dispense valuable advice, I am not a licensed financial adviser. All information is based solely on my personal experience and personal research and should be treated as such. Find out more.