20 years old and moving out. How much to spend on rent?

Submitted by Green_Horn18 t3_zz7n11 in personalfinance

I’m a 20 YO male and moving out of my parents home within the next 6 months. I have about $10k put away for a starter emergency fund, and an additional $10k for security deposit, rent (first and last month), furniture, etc. I will be starting a job in the trades grossing about ≈ $50k a year, with contract pay increases until I hit a gross of about $100k in 4 years.

An apartment in the area I will be moving to will run me a between $800 - $1,500 and I can also rent a house for about that $1,250-$1,500 price point. I’d like to rent a house, as I have a bunch of equipment, tools, heavy gun safe, full size truck and I could make that work easier on ground level and a garage setup. I’ll admit I’m a little biased towards a house though.

I have other misc. things from running a business through high school that puts my net worth around $75k-$80k. I have no debt whatsoever (pay off CC every month), credit between 750-800, and a Roth IRA going at about $500/month.

I’d like to buy a house in this area in the next 4-5 years. I think renting will tell me where to buy and if I even want to live here.

Here’s my question:

Is it a bad idea for me to rent a home for approximately ≈$1,500/month? Any advice that you can share with me or helpful information?

Thanks!

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clearwaterrev t1_j29xk64 wrote

> Is it a bad idea for me to rent a home for approximately ≈$1,500/month?

Yes, that's too much to spend on housing while you're earning $50k.

The general rule of thumb is to keep your housing costs (including utilities) under a third of your gross (pre-tax) income. That means you'll want to find a place to rent where your monthly rent and expected utilities are no more than $1,388.

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Green_Horn18 OP t1_j29ymtg wrote

Thanks for the reply!

My pay will be raised every 6 months by contract. My current monthly budget for food, phone bills, gas, insurance, clothing, and misc items is around $600 per month. Add $500 for Roth contributions.

I can find a home for $1,350 but I also don’t see why spending another $100 month, especially when my pay is set to increase regularly is a problem. Just thinking out loud here.

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clearwaterrev t1_j2a0i7a wrote

Your take-home pay after taxes will be something like $3,400 per month, and if you were to spend $1,500 on rent and an additional $350 on utilities (electric, gas, water/sewer, home Wi-Fi), you’d have only $1,550 remaining for all other spending and saving.

Also— $600/ month for all living expenses other than housing seems very unrealistic to me. Can you break that number down? I’d expect a single adult to spend something like $250-350 per month on groceries and other consumables (toilet paper, laundry detergent, razors), at least $100 per month on auto insurance, another $150 or so on gas, $50 on auto maintenance and repair, $50 for cell service, $200+ on hobbies and entertainment, and so on.

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Green_Horn18 OP t1_j2eulgd wrote

My monthly budget consists of the following line items:

- $250 groceries

- $150 (ish) gasoline

- $104 car insurance

- $19.95 phone bill

- $30 (approximately) subscriptions (Disney+, Apple Music, etc.)

- $50-$100 misc. category

The Misc. category includes things like shampoo, razors, haircuts,

movie rentals, hobbies, and other things. Most of my hobbies

are very inexpensive. I like to hike, camp (tent for free or in state

parks), fish, hunt, and shoot. I do have a considerable amount

tied up in firearms, ammunition, and the like, but my monthly

expenses related to this are minimal as I don't shoot a whole lot.

Hunting and fishing are very seasonal for me, and I do them in a

way that doesn't cost much. Once you buy the gear, your regular

expenses are basically a fishing license ($30-ish), bait, tackle, and gas,

and that's about it. Hunting is similar and only done during very specific

times of the year. Hiking costs me next to nothing other than gas and a

parking pass.

I exercise a lot and see many people spend lots of money here.

You really don't have to drop bills to stay in shape - especially

at a young age. Here are some specifics:

- workout from home - no gym memberships. There's so much

you can do from home to stay in shape. I typically focus around

running/walking, and body weight exercises such as calisthenics,

plyometrics, and isometrics, biking, and swimming. My local HS

has free swim early mornings for $2.

- avoid buying expensive "health" food. What I mean by this is

anything like protein powder/food, workout/health/protein bars,

"fat-loss" type food products, anything like that. You can get the most

of everything you need just by eating healthy food, which really

isn't expensive if you know how to cook. In my area, milk is a couple of dollars,

fresh produce is relatively inexpensive, canned meat (like the

tuna I buy has 46 grams of protein in a little can and costs $2.30 per unit),

and I also harvest meat from my hobbies such as venison (usually

45 - 90 lb per year), fish (varies a lot but usually dozens of meals

per year), and other game animals. So just a few thoughts there.

I see so many people spend a good amount of money on gym

memberships, trainers, "health" food, workout equipment, and

even clothing. Many of those things are not always necessary to achieve the desired result.

Car repairs/maintenance are done from earmarked cash on hand

(about $1,000), anything sudden car issues above that will be

cash-flowed with EF funds. Any amount spent is budgeted and replenished next pay period. I have a well-cared-for 2015 F-150

(paid cash for it) that haven't been any significant issues (knock on wood) so

far. Only replaced O2 sensors and regular maintenance. An oil

change, tire rotation, fluid top-off, and quick inspection run me

$45 from my local auto shop.

Roth IRA contributions are set at $500/month. I try to shoot for

$6,000/year or whatever the maximum limit is that year.

I like to study personal finance and have done a lot of thinking about

ways to save money without feeling deprived of anything. I love

my lifestyle and feel content. Hope this helps answer your question about breaking down my budget.

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clearwaterrev t1_j2f9mqm wrote

Is the $104/ month car insurance cost because you have insurance bundled with your parents' policies? When you move out and have a new address, you'll need to get your own policy, and the cost may increase. It's rare for 20 year olds to have inexpensive insurance just because young people are riskier to insure, on average.

> - $50-$100 misc. category

This may be accurate if you are super frugal, but I suspect your actual costs will be higher. Think about everything you might spend your money on in the course of a typical year: new housewares (towels, bedding, cooking equipment, small appliances), oil changes, gifts for others, social activities with friends, new clothes and shoes, contacts/ glasses if you need them, dentistry costs not covered by insurance, vehicle registration fees, travel/ vacations, replacement electronics, furniture, parking,

It's hard to predict how much you'll spend on all of these things, but with your budget you are only allocating up to $1,200 for the entire year, and that seems unlikely to me.

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Green_Horn18 OP t1_j2ffgy6 wrote

I agree that isn’t not realistic for a single person with a home. My budget will definitely increase at that point. And yes, my overall budget is more than $6,000-$7,000/year. But typically I spend $600-$700/month throughput most of the year currently.

I am very frugal and try to save money on things I don’t really care about. I would like to spend more on my living situation, but I suppose it would be best to put that towards a home I own, not rent.

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tony_boxacannoli t1_j2alu19 wrote

>I also don’t see why spending another $100 month, especially when my pay is set to increase regularly is a problem.

It's a huge problem....it's called life-style creep - the more you make, the more you spend.....next thing you know, 8 pay increases have happened and you don't know what happened to your money because it's "only $100".

the problem is not in spending the money - it's the perception that it's only a little bit. That little bit, compounded over the next few years is substantial. Now what was once only $100 extra rent...becomes $400 going to rent increases, Starbucks, BEC w/SPK everyday, a round for the crew on friday, etc.

I'm going to assume you are in an apprenticeship program with the trades at somewhere in the about 40%-60% journeyman rate (if I'm wrong - correct me).

Apprentices "always" work...cheap labor is always in demand - is the work picture guaranteed after you top out in the next few years?

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Green_Horn18 OP t1_j2ey08x wrote

Well first, skilled labor is very much in demand, and licensed trades conducted by licensed professionals are always needed everywhere. HVAC techs, plumbers, and electricians, for example, will always have work as long as people want to stay warm/cool and have access to water, and electricity. Job security, in my opinion, is a fallacy. Anybody can lose their job. Granted, some positions are more "secure" than others. To answer your question directly, my work will be in demand once I become a fully licensed tradesman, but it is not necessarily guaranteed. No job really is.

I have been working in and around the trades for 5-6 years already and can say with confidence that most trades are hurting badly for help, both apprentices and journeyman-level or above professionals.

Second, you are absolutely correct. My wage will start at a percentage of the JW rate as you described. Set pay increases are scheduled to occur every 6 months until you reach the full JW rate. You can still make more though, say if you get your master's license or take on a supervisor-type role.

​

Lastly, I understand and agree with your point about lifestyle creep. I have a few friends and family that are "victims" of that, unfortunately. I can assure you, though, that I pay a lot of attention to my spending and do my best to avoid being wasteful/impulsive and generally make my money go further.

I know spending more on rent than I need to reduces my savings ability and opens the door to other increases in spending, but I guess what I am saying is I don't mind paying some more and saving in other areas to do so. Thinking it through, perhaps I will rent something cheap and then buy a home with 20% down and more.

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tony_boxacannoli t1_j2f2arg wrote

I think you have thought on this long and hard...and have come to the right decision. Good job. 👍

Go bend some nails.....have some fun along the way too .

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HollySolan t1_j29zxu2 wrote

Put it this way, the more you spend on housing the more comfortable you will be and the bigger place you will have... but.... if your goal of getting a house 4-5 years is till a thing for you I would suggest renting a little studio apartment for cheap and save as much money as you can... houses are not cheap.

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BastidChimp t1_j2a14dx wrote

To be conservative, your monthly rent payment should not exceed 30 percent of your take home pay. The rule of thumb is actually based on your gross income but by being conservative you have more wiggle room to account for renter's insurance, regular maintenance, utilities, etc. It's not just about the rent.

Congrats on starting off in the trades. I was an apprentice once.

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forest_gitaker t1_j29zssv wrote

as a rule of thumb, don't rent at the maximum edge of what you think you can afford. people overestimate this when moving out (myself included) but usually the real max is 80% of the number in your head.

that said, renting the house is going to let you "skip" the experience of living in apartments, which is worth it. sounds like you're doing well too so good luck on ya

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Green_Horn18 OP t1_j2ey8l8 wrote

Noisy neighbors are another reason why I am not too keen on renting an apartment.

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ELEVATORDON1 t1_j2ch527 wrote

Renting is a waste of money. Get a 1st time home buyers loan fha or something along those lines . Little money out of pocket , just earnest money deposit. Ask seller to cover closing costs , your house payment will be less than rent . It will also be yours . Get a starter home 1000 square ft. When u sell in 5 years your profits go into your new home . And i guarantee youll have more enjoyment out of your new house with very little cash out of pocket!

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ELEVATORDON1 t1_j2chit8 wrote

And usually no payment for about 2 monthes ! Just more time to save until you start payin ! It would be crazy not to , take it from another tradesman! Lol 👍

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