Advice for new grads moving out for the first time.
Being a new graduate is an exciting time — the start of a fresh chapter as students make the transition to the working world. For many, it also means preparing to officially move out of their parents' home and into a place of their own.
If you're a new graduate who's been perusing rental websites and thinking about making the leap, we have some tips for you, courtesy of our own Derrick Brooks (DB). In addition to being an executive director of enterprise digital strategy at Commerce Bank, Derrick is a board member for Big Brothers Big Sisters of Eastern Missouri and has provided financial guidance to many young people over the years.
Here's some of Derrick's best advice for new graduates (or anyone else, for that matter) interested in getting a place of their own for the first time.
What role does a solid budget play in the process of finding an apartment?
DB: I will often say,
“If you don't know, you can't grow.”
In other words, you can't take that next step in your financial life if you aren't clear about how your income stacks up with your expenses. You have to fully understand your financial situation, and that won't happen by accident. Budgets are the first and most critical step in actively taking control of one's finances.
Developing an accurate budget will take at least 30 days. That will give you enough time for all your bills to run their course. Take a weekly accounting of your expenses — make the effort to be diligent about it. You will also want to categorize your spending into major buckets like food, entertainment, car maintenance, rent, utilities, etc. Be sure to also add in a line item for renter's insurance, as it's a low-cost way to help replace things if something unforeseen happens, like theft or a fire.
I also strongly suggest adding additional categories for personal savings — cash savings, retirement savings, or both — and for charity. I recommend a charity category because I believe it's important for us all to give back.
How can people best determine what rent they can afford?
DB: I'm a big fan of free online housing affordability calculators. There are plenty of them out there. They do a simple calculation based on the information you enter: your gross income, monthly bills, and any other expenses. From there, you can establish a baseline of what you can afford. Of course, you can aim lower or higher on your rent target if you want, depending on your preferences and your circumstances.
I should add that you want to feel confident that you have a steady income before taking on new expenses. Whether it's a full-time job or reliable gig-economy work, you should have a high level of confidence in your income. It's also a good idea to save up for a while before you move out, so you have something to fall back on if you need it. This is a big reason why plenty of graduates move back in with their parents after graduation, at least for a bit. Surprise expenses always come along, and you want to be ready.
If it looks like your budget won't afford you the ability to get an apartment on your own, there's always the option of finding a roommate to help share expenses. It helps if it's someone you know well and already trust; you don't want to be stuck in a bad spot if they back out or aren't paying their share of the rent and utilities on time.
What role does credit play in renting an apartment?
DB: Having a credit history — and making sure it's good credit history — is essential. Many landlords will want to run a credit check on you before they'll allow you to sign a lease with them. That's one of the reasons why I'm a fan of young folks having at least one credit card as soon as possible in order to start establishing credit.
I recommend paying the balance on your credit card weekly, but at a minimum, pay it in full each month. I encourage folks to set up automatic payments to at least cover the minimum payment due at the end of the cycle so they aren't at risk of forgetting to make a payment. Paying all your bills on time is important and will help keep your credit score in a good place.
Anything else people should know?
DB: If you're struggling with getting your finances organized or just need some help with budgeting, don't be afraid to reach out to someone you trust. Talk about it. Finances shouldn't be a taboo topic. Too often, we don't like to talk about money, but don't shy away from having important conversations about it. Getting good guidance can sometimes make a world of difference.
