Right financial decisions can help save money for rainy days. Whether you share an accommodation or have rented an apartment to live with your bae, financial planning can help you save while enjoying a luxurious life.
Financial management is an essential skill that everyone should master. It involves setting a budget, allocating, preserving, and limiting expenditures. First-time renters may find it challenging to maintain a record of spending. As a result, they may feel broke at the end of the month.
Finance management lets you plan your retirement life, illnesses, special occasions such as your children's marriage and more. Poor management of finances can lead to unforeseen losses and even debts. According to a Federal Reserve Bank report, in February 2024, household debt rose by $3.4 trillion since the last recession of 2019. Moreover, a rise in credit card balance, auto loans, consumer loans, total non-housing loans, and mortgage loans by $50 billion, $12 billion, $25 billion, $89 billion, and $112 billion was recorded.
In short, being unable to manage finances can lead to a severe debt crisis. To prevent going bankrupt, learning how to manage your finances is vital. Household rent is one of the most significant expenditures which can be negotiated but can't be escaped. Therefore, people living in rented accommodation must have a plan to manage finances.
Managing your finances is not difficult. You must draft a budget that matches your goals and has a good credit score.
Let's begin by understanding how to create a budget aligned with your goals.
The first to create a budget as a first-time renter is understanding how much rent you can afford. You may come across accommodation that meets your requirements and gives you a cosy feeling, but that comfort has to be in line with the rent that your income can afford. Let's begin understanding how to decide the rent you can afford.
Deciding Income and Rent Ratio: As a rule of thumb, the rent of your house should not be more than 30% of your monthly income after tax. Suppose your monthly income is $1000 (after tax) your rent should not be more than $300.
A rent not exceeding 30% of the income saves you for other expenses like food, medicines, travel, special occasions, and more.
Although rent is the most significant expenditure, the cost of renting can contribute to huge expenses. The renting cost may refer to the security amount or upfront payment the owner may request. Most landlords ask for an upfront fee. The security amount can be 50% or a month's rent in advance.
Utility expenditure is another thing you must consider when renting accommodation. Look for an energy-efficient accommodation that can help you save money on utility bills. Also, when ranting about an accommodation, opt-out or cancel any other subscription to prevent paying extra for something you are not using.
Recurring Deposit: you can set up a recurring deposit in your bank account. The regular deposit facility lets you make a fixed monthly deposit to your savings account. It is a golden way to save money for the future consistently.
A credit score refers to your credibility history, which includes repayment history, total levels of debts, the number of accounts, and more. Lenders use your credit score to decide whether to approve your home, vehicle and personal loans. Maintaining a good credit score is essential because you may have to take a loan to buy a house. There are various credit scores, but the higher the score, the better it is for you.
First-time renters can save money by managing finances and renting a property wisely. Remember, while you may be excited to move to a new property, don't let your excitement overrule your financial planning. Consistent savings can help you save money for the future and manage day-to-day expenses without taking any financial help, which may help improve your credit score.
