Renting and Your Budget

These days, it’s not that easy to get a mortgage to buy a place. Perhaps that’s why around one in three families in England and Wales rent a place to live1. But, renting a home isn’t cheap and there are all sorts of costs to take into consideration before you sign a rental agreement.

To work out how much you can actually afford to spend on renting a place, you need to find out what all your outgoings will add up to. You then need to see if your monthly income will cover this figure and decide if this will leave enough for you to live within your means.

It’s amazing how quickly renting costs can add up, so although finding out the figures isn’t going to be fun, it’s essential that you check out the costs before you actually start viewing places.

Unless your rental comes with an all-inclusive price, it isn’t always just a case of coming up with your rent money every month. There’s a whole raft of household bills to cover, including:

• Council Tax – you can check out the Council Tax bands at: https://www.gov.uk/council-tax-bands and then check that the rate quoted by the landlord or agent is the correct price
• Utility bills – gas, electricity and water aren’t cheap these days
• Service charges – ask the agency or landlord for a guide to the likely costs you may have to cover
• TV licence (and satellite TV costs if applicable)
• Broadband – one of life’s essentials these days

And don’t forget your other outgoings:

• Food – you can’t live on beans on toast forever – keep it realistic
• Insurance – home contents, life, critical health and car, there are a lot of policies to consider
• Your loan and credit repayments – be sure to leave enough to make your repayments or you credit rating could suffer
• Mobile phone – contracts and call charges can soon take a big bite out of your money
• Clothing – work out how much you spend on clothes each month, but also note that there are bound to be occasions when you need to spend more, such as for an interview or that big night out
• Transportation – the cost of commuting can be a major outgoing these days
• Leisure – consider how much you spend on everything from hobbies and gym memberships to socialising
• Saving and investing – remember to try to put at least a little to one side for rainy days and golden opportunities

When you do your budget, note that it’s best to overestimate and round-up rather than under-estimating and getting into debt. But you could take this as an opportunity to economise and stick to a firm budget.

Once you have realistic expense figures, subtract them from your income and then you’ll have found your affordable rental figure.

But before you start viewing places, you’ll find it handy to have money ready for upfront costs. These will probably include:

• Rental deposit – usually this equates to four to six week’s rent
• Agency fees – these can be significant – the average ‘administrative’ fee in London has been as high as £2202
• Removal fees – it’s probably cheapest to move your belongings yourself, but whether you hire a van or engage a removal company, you’ll need to pay out money
• Furniture – this obviously only applies if you’re renting an unfurnished place

Once you’ve actually moved in, you’ll need to decide how you’re going to keep on top of your bills.

To help you to stay on top of your bills, you could open an account specifically to take care of them. That way, you’ll know that what money is left behind is yours to spend.

You could open a High Street bank account, or you could takeout a Prepaid Credit Card UK account. A Prepaid Credit Card can often be applied for online, in a couple of minutes, and it doesn’t usually require credit checks just to open an account.

Once you have a separate account to pay bills from, depending on the bank or card provider, you can then set up Direct Debits to pay your bills automatically for you. One Prepaid Credit Card offers a feature called ‘Debit Protect’, which may provide you with an instant emergency one-off overdraft to cover a payment shortfall.

If you’re renting a home with flatmates, you need to agree who’s paying which bill, or sort out a system. You could make up a list of shared bills and agree roughly what the cost of each bill is per month. Then just divide the amount by the number of occupiers and you’ll know how much you all need to contribute each month. You could all pay in a set amount each month that’s a little more than enough to cover your bills. That way you’ll always have enough to cover your bills and if you have money left over, it can go towards your general house supplies.

Renting a place takes time and financial planning and budgeting. But, it will all be worth it if you get a place that you like that’s within your means.