Moving out on your own can be scary, especially if you don’t know what to expect.
Unlike being back in your dorm room, when you finally move into an apartment or home of your own, you’ll feel like you’re really on your own. When I stepped into my first apartment for the first time, it was open and empty – and all mine.
Both sets of keys were mine, as was all the responsibility.
I unloaded the backseat of my Jetta, which stored many of the same items that got me through four years of college. This unpacking was different, though. I wouldn’t be home for winter or spring break. I wouldn’t move back for the summer. If everything went according to plan, I would never move home again.
Lucky for me, things worked out. Lucky for you, I’ve learned some things about moving on your own that are worth sharing.
Create a credit history
If you haven’t already done so, you’ll need to create a credit history. In the age of plastic, it’s unlikely that you haven’t already done this. Just in case, you can create a credit history by using credit cards.
Apply for a low-interest rate credit card to use for regular expenses. The more you use this card,the more credit history you’ll build. If you prove that you can use your credit card and consistently make your minimum monthly payments (or, preferably your full credit card balance) your credit score will improve. This will make it easier for you to get loans in the future.
If your sole purpose is to build a credit history, don’t get sold on the features and benefits credit card marketers try to sell. Those perks can be valuable if you’re a strategic credit card user and diligent with paying your credit card off every month. Those credit card offers are designed with the hope that you’ll carry a balance month-to-month.
If you’re concerned you won’t be able to control your credit card usage or pay off your balance, get a gas station credit card to build a credit history. You likely regularly need gas anyway. Use this need to your advantage.
Open a credit card at a gas station you regularly use. Gas station credit cards can only be used at the gas stations at which you apply. Add your gas expenses to your monthly budget and pay your balance on time and in full every month. Credit limits on gas station credit cards are often low, so you may get approved for a gas card sooner than other types of credit cards.
An alternative to this strategy is getting a secured credit card. A secured credit card has collateral to backup or secure the loan, similar to auto loans and mortgages with cars and houses that backup or secure the loan. The collateral for a secured credit card is a cash deposit. This cash protects the lender from you defaulting and is refunded as you use the secured credit card. In time, your credit score will improve and you can get an unsecured or traditional credit card.
Manage your credit score
As you’re creating a credit history, you’re being scored. Fair Isaac Corporation (FICO), which calculates the most commonly used credit score, uses a point scale from 300 to 850 with 300 being the worst possible score and 850 being the best possible score. There are five factors used to calculate credit scores:
- Payment history
- Amounts owed
- Length of credit history
- New credit
- Types of credit
If you’re only starting, you won’t have much effect on your length of credit history. However, payment history and amounts owed are within your control.
Therefore, pay your bills on time, especially your credit card bills. Good payment habits show banks you’re creditworthy. To simplify this, automate your bill payments. Most online bank accounts offer bill pay. Open an account that offers bill pay, have your paycheck direct deposited into this account and your bill pay to pay your bills each month. Take on only as much debt each month as you’re capable of paying off each month. You want to use your credit and not let it use you.
The part of your score affected by amounts owed includes:
- The amount you owe on all your credit card accounts,
- The amount you owe on different types of accounts,
- The percentage of your credit accounts that have balances,
- The amount of revolving credit you have, and
- Your credit utilization.
Your credit utilization is the percentage of your available credit that you’re using. Lenders consider borrowers who less of their available credit as better risks. Keep your overall credit card balance well below your available limit otherwise your credit score will drop.
Have at least one bill in your name
To help build your credit history and improve your credit score, have at least one bill in your name and make a few payments on that bill before you move out on your own. This shows creditors, banks and FICO you’re a responsible client.
Having your cell phone bill in your name may be the easiest way to establish this kind of credit history. Also, consider putting your car insurance and car loan, bills that are specific to you and not an entire household, in your name. Then, pay those bills on time and in full each month.
Put yourself on a budget
I avoided it like the scale at the gym, but not until I embraced having a budget did I get control of my money. I originally saw having a budget as restrictive and hard to manage. But then I realized that in addition to telling me what I can’t do, a budget tells me what I can do and when.
Would you rather have a margarita on the beach in Mexico occasionally or would you rather have a margarita at the bar down the street regularly? A budget will help you get to Mexico.
Put yourself on a budget even before you move out on you own. The sooner you start the better. Starting a budget before you move out on your own will give you the opportunity to make mistakes before they’re irreparable.
There a ton of tools for creating a budget. For years, I have faithfully used a simple Excel spreadsheet. I list my bi-weekly take home pay on the top line, then subtract each of my non-discretionary monthly expenses – bills I must pay, like rent – from the appropriate bi-weekly pay column. That tells me how much money I have left over for my non-discretionary monthly expenses – subjective expenses, like dining out.
You may have to pay bills you currently don’t pay
Living at home often makes us oblivious to the costs of maintaining a home and a standard of living, because we’re not responsible for upholding it. When we move out on our own, all the bills are ours.
Some apartment complexes and buildings include utilities such as heat, electricity and hot water in their monthly rent. When you move out on your own, be clear on which ones you’ll have to pay separately from the rent.
Don’t forget about your non-housing related bills
Such bills include, WiFi, cell phone, student loans, transportation, groceries, insurance, cable (though with all the streaming options these days you might want to take a pass on this one) and, last but certainly not least, savings and investing. Add these all together, and make sure your expenses don’t exceed your monthly income.
Control your living expenses
By now, moving out on your own may sound expensive. It can feel that way, but it’s still possible.
You’ll do yourself no favors by spending more than you bring home each month. If you must live at home longer or find roommates to move out with, then do so. You may need to switch from a premium phone company to a discount service company or try to return that dog you leased. You may need to get a second job or work overtime at your current job.
There’s a lot to consider when moving out on your own. Gather as much information and knowledge as possible. Search online and contact apartment complexes and other rentals for details of what you can expect. Ask questions of family and friends, especially those who have recently moved out on their own. Learn everything you can and moving out on your own will be fun and exciting.
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Image: Milles Studio