Can You Afford to Live Alone? Creating Your Solo Living Spending Plan
For many young adults striking out on their own, the ultimate goal is to live alone without roommates. But is this goal feasible from a financial perspective?
To find out, you need a clear picture of your finances. The word “budget” often has a negative connotation of restrictions, so let’s think of it as a Spending Plan instead. Creating this plan is the only way to determine if you can meet your living situation goal.
Here is a step-by-step guide to see if you can afford to live alone.
Step 1: Calculate Your Total Monthly Income
First, you need to know exactly how much money you have coming in. Gather all your income statements (showing your take-home pay after taxes, not your gross pay). Be sure to include income from your primary job as well as any side-gigs and other regular sources of money. Add all of these sources up to get your Total Monthly Income.
Step 2: Determine Your Total Monthly Expenses
This part requires thorough tracking and some research. It’s helpful to break your expenses into two categories.
Your Current Spending
To get an accurate picture, track everything for one full month. Put all your financial paperwork (or relevant digital records) in one place. Keep all your bills and receipts, and review your statements for all credit card charges, bills auto-paid from your checking account, and all payments made through apps like PayPal or Venmo.
New Responsibilities
These are expenses you currently don’t pay for now, that you will be responsible for when living alone. Common examples include car insurance, a cell phone plan (if you were on your parent’s family plan), groceries, health insurance, utilities and rent.
If you don’t know what those will be, research the actual cost for each. It’s always helpful to overestimate these costs to be safe. Do an online search for the average costs in your target area. For a more accurate number, ask people already living in that geography what they typically pay.
Finally, how will you get to work if you don’t work virtually? If you need to buy a vehicle or pay for rides or public transportation, add this estimated cost to your list.
Step 3: Do the Math
Now it’s time to total everything up.
- On one side of a page, write your Total Monthly Income (from Step 1).
- On the other side, list all your expenses (from both parts of Step 2) and add them up to get your Total Monthly Expenses.
- Look at the two totals. Which number is larger?
The Results: What to Do Next
If income is larger than expenses:
Congratulations! You can likely meet your financial goal of living alone without roommates and without going into debt. In fact, that difference between the two numbers is an amount you can start to put aside for savings goals.
If expenses are larger than income:
You will not be able to meet your goal of living alone at this time, but don’t worry. You now have a clear understanding of your finances and a target to aim for. You have several options:
Reduce expenses: The most common solution is to get a roommate to split the costs of rent and utilities. But you can also look for things like a cheaper phone plan, or reduce subscriptions and cable/internet levels of service.
Increase income: Look for opportunities to get a promotion or raise, or consider a side gig if you don’t have one already. Remember, that a side gig might come with additional expenses, so don’t forget to adjust your expenses as well.
Adjust your goal: You may need to change your goal for the short term, perhaps by finding a less expensive apartment or postponing the move.
Keep in mind that this information represents just a point in time. Financial goals can, and should, be reevaluated. Review your plan regularly to see if income becomes bigger than expenses over time. Life changes, and so do our priorities.
If you need help organizing your financial paperwork or setting up a clear spending plan, a Daily Money Manager (DMM) can assist. Click here to find a DMM in your area.
Thomas Lapp is the owner of Triad Personal Paperwork Services, and spent nearly 30 years in the information technology field prior to starting his DMM business.