Preparing Your First Budget

If you’re planning on moving out for the first time, you’re likely experiencing a flood of emotions. On the one hand, you’re excited to enjoy a newfound sense of independence. On the other hand, you’re anxious about the strain it will place on your financial wellbeing. It’s completely normal to feel nervous about these added costs and how you’re going to afford them. But learning to create a budget will be helpful as you transition to your new environment.

To assist you in this process, here are a few things to consider as you prepare your first budget: 

Determine Monthly Net Income

The first and generally easiest step is to determine your net monthly income. This is the money you will use to pay bills and cover any additional expenses. If you earn a set salary, the process is pretty straightforward - simply double your regular paycheque if you are paid bi-weekly or semi-monthly, or multiply by four if you are paid weekly. However, if you are paid hourly or if your work is unpredictable, you will need to estimate. For an hourly employee with a consistent schedule, the average of the past six months’ deposits will likely be most accurate. If your job is seasonal, though, you will want to use the average of the past year. Remember, especially if you are unsure, it is always best to underestimate your income and have money left over than to overestimate and to leave yourself short.

Calculate Monthly Expenses

The next step, which is slightly more difficult, is to calculate your monthly expenses. It may help to begin with the bills you were already paying while living with your parents. These could include your mobile phone, vehicle or transportation expenses, your gym membership, personal care, clothing and entertainment costs – anything you already know the cost of. On top of those, you will need to account for several new expenses; these include rent, electricity, heating costs, cable and internet, insurance and food. If you’re unsure, ask your family and friends what these expenses cost them and then adapt to your situation – again, remembering it is best to overestimate those costs and adjust later as necessary.

Once you have a clear picture of what you earn and what a typical month of living on your own will cost, you should then start thinking about some emergency scenarios which might place unexpected strain on your finances. This might be a vehicle breakdown, a lost or stolen phone, a hard drive failure on your laptop or anything that will require a major payment to fix. It is not a matter of if one of these events will occur, but when. So, it is important to set some money aside in your budget to ensure you can afford to manage it. 

Determine Moving Costs

Finally, you need to factor in the cost of your first move. Upon signing a new rental agreement, most landlords will require first and last month’s rent, plus a security deposit. Of course, you will also need to furnish your new home, so you should account for the cost of a couch, bed, tables, dishware, cookware, cutlery and linens. You then need to decide whether you’re going to rent a moving van, hire movers, or rely on your family and friends to lend a hand. These costs all add up and will be well above and beyond your typical monthly or emergency expenses.  

Moving out on your own is an exciting time and a big step toward independence. With that said, it is also a huge responsibility and should not be taken lightly. If you want to be successful as you enter this new phase in your life, your financial security should be a top priority. By taking the time to create an honest and conservative budget, you will ensure you can live comfortably – with peace of mind and money in your pocket.
Based out of Markham, Joel Kideckel is a Licensed Insolvency Trustee at MNP LTD. To learn more about how MNP Debt can help, contact out local office at 416.515.3921.