Getting financially prepared to move out requires action. Often, you’ll need to take specific steps to ensure you’re ready to live independently. Otherwise, you may experience a notable financial hardship that derails your budget incredibly quickly. Luckily, it isn’t hard to begin on the right path. If you want to make sure you are financially prepared to move out on your own, here are five steps you need to take.
1. Research Local Living Expenses
Many people underestimate what it costs to live on their own. Along with handling rent or a mortgage payment, you’ll also need to pay utilities, garbage collection, and insurance, at a minimum. There may also be other expenses, depending on your area, like parking space rentals or homeowner’s association fees. Plus, there could be additional costs, like the need to buy your own groceries, that may be new to you, as well.
Before you move out, get financially prepared by reviewing the local cost of living and going rates for many common expenses. That way, you’ll have a complete picture of what you’ll need to spend when you strike out on your own.
2. Create a Household Budget
After researching local living expenses, make sure your financially prepared to move out by creating a household budget. Even if you are dealing with estimates for utilities and similar costs, it will give you a solid idea of how far your income does (or doesn’t) go.
Plus, this allows you to address any other financial obligations. This includes existing debt payments and optional spending.
3. Set Aside Money for the Transition
When you first move out, you’ll often face costs related to the transition. For example, if you’re going to rent a place, you may need to pay first and last month’s rent, as well as a security deposit. For aspiring homebuyers, earnest money, inspection costs, down payments, and similar expenses have to be handled during the buying process.
Additionally, with your first place, you may need to acquire a variety of items. Many people don’t own their own kitchen trash can, mop and broom, vacuum, shower curtains, and similar items until they get a place. If you don’t have that stuff, you need to account for the cost of buying it all.
After you know how much you need, you can set aside money to assist with the transition. That way, you don’t have to turn to debt or get stuck having to pause your move out plans because you can’t handle some of the expenses.
4. Establish an Emergency Fund
Having an emergency fund is a must if you want to be financially prepared to move out. It ensures you can deal with the unexpected once you are on your own without having to turn to debt.
Ideally, you want at least $1,000 set aside before you get a new place. However, if you can stash three to six months of living expenses, that may be a better approach. That way, if you experience an unexpected job loss, you can still cover your bills for a period.
5. Review Your Credit History
Most landlords and all mortgage lenders are going to check your credit. As a result, it’s wise to know what’s on your report before you begin looking for a new place.
Everyone can check their credit reports for free once a year. You can head to AnnualCreditReport.com to access yours. While these reports don’t have your credit score on them, they do show what’s been told to the bureaus. If you see a discrepancy, you can then work to address it, ensuring your score would be in the best shape possible.
However, if you have no or poor credit, you may want to spend a little time building up a good history before you move forward. Otherwise, you might have to get a cosigner or could be denied when you apply to get into a new place.
Exactly how you build up your credit will depend on your unique situation. If you have existing debts that are reporting to the bureaus, work to maintain a good payment history and reduce your balances.
If you don’t have any history, you may need to open an account – such as a credit card or a personal loan – to begin building one. Just make sure to proceed with caution and act responsibly. Otherwise, you could hurt your situation instead of helping it.
Do you know of any other tips that can help someone be financially prepared to move out? Share your thoughts in the comments below.
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