The Price of Freedom: How Much Do You Need to Save to Move Out?

Jane Switzer
by Jane Switzer August 30, 2018 / No Comments

As badly as you might want to move out of your parents’ house, you also don’t want to be living on the brink of financial collapse. Besides affording your monthly expenses, you should hopefully be able to build savings, pay down debt (if you have it), and have a little money left over for fun spending. Before moving out on your own for the first time, you’ll need to ask yourself if you’re ready to cover the following:

Regular monthly expenses

It’s pretty simple: Do you earn more than your expenses cost? If the answer is no, you can’t afford to move out. Create a monthly budget that accounts for rent, utilities, food, transportation, internet, cell phone, cable or streaming, and renter’s insurance. Don’t forget the ongoing expenses associated with being a functional human adult such as cleaning supplies, toiletries, laundry, and toilet paper. Try living on your proposed budget for a couple of months while you’re still at home. Set aside the money earmarked for the essentials in an emergency fund, which will provide a cushion for when you actually move out.

Credit score

Most landlords use credit checks to screen the financial trustworthiness of potential tenants. Your credit report details your entire borrowing history, including the number of late payments. A credit score is a numerical representation of your financial health, between 300 and 900. Excellent credit scores (760 or higher) will obviously look the best, and most landlords will want to see a credit score of at least 660 (considered “fair”). Before you start the apartment hunt, order your credit report and check your score to see where you stand and whether there are any errors. You can check, and track, your credit score and report for free through websites such as Borrowell and Credit Karma.

Paying off debt

Student loans can understandably take several years to pay off, and any debt repayment obligations should be factored into your budget. But moving out with a whack of credit card debt on your shoulders isn’t a good idea. If you’re carrying consumer debt but don’t pay rent or other expenses while living at home, you’re already living beyond your means – that won’t fly when you’re on your own. Make a plan to clear the balances before moving out, and refer back to your budget for how much spending money you’ll have after the bills are paid. If the margins are too slim, you might not be able to afford to move out just yet.

Emergency fund

An emergency fund is a savings account that acts as a buffer against any unforeseen and expensive issues like job loss, an emergency trip to the vet, or car repair. Before you move out, you should absolutely have an emergency fund in place. This doesn’t necessarily mean saving up the three to six months of living expenses often suggested by experts, but at least $1,000 to $2,000 to cover any disasters during the first few months of living on your own. When you move out, try to squeeze contributions to your emergency fund out of your budget – even if money is tight and it’s just $20 at a time.

A good idea is to keep your emergency fund in a high interest savings account. That way, your balance is protected and you will earn some interest.

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Putting down deposits

Expect to shell out up to two months’ rent right away. Depending on the province, landlords can ask for a security or damage deposit (no more than the cost of one month’s rent), or a rent deposit (usually one month’s rent, held as payment for last month’s rent). In an expensive city like Toronto, where the median monthly rent for a one-bedroom apartment is $2,000, this would mean putting down $4,000. Know your local rights – in Quebec, for example, landlords can’t ask for a deposit. In Ontario, only rent deposits are allowed. If utilities aren’t included in your rent, you might have to put down a deposit to open an account as a new customer.

Moving and set-up costs

This includes packing supplies, hiring movers or renting a truck, or booking time off work if needed. Fewer belongings means cheaper moving costs, but that could mean spending more on furniture, appliances, and other household items if you aren’t sharing your space with roommates.

Renter’s insurance

Renter’s insurance (also called tenant insurance) covers damage to or theft of your personal items, third-party liability (your bathtub overflows and damages a neighbouring apartment), or living expenses (fire damages your building and you need to move out). This might seem like an expense you can do without, but it’s actually the cheapest type of insurance out there at around $20-$30 a month, or $240-$360 a year. Tenant insurance isn’t required by law, but some landlords require it as a lease condition and may ask for proof of insurance before handing over the keys.

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Photo by Roberto Nickson (@g) on Unsplash