How to teach your kids budgeting for their first apartment

We can all remember our first apartment; the tiny, over-priced, no-counter-space apartment in the middle of the city. On second thought, maybe we’ve erased that place from our memory completely. One thing your first apartment teaches you, however, is how to budget properly. It might be time for you to pass this knowledge to your kids if they’re moving out to their first place in the big city, or even if they’re moving to a house near their university. A lot has changed since you might’ve had to budget – so we’ve asked our friends at Mylo to help us uncover the best budgeting methods that put technology to use!

It’s all about setting goals

Laying out exactly what their expenses will be each month, plus being mindful of the “nice-to-haves” (i.e. going out for dinner once in a while) is a great first step to defining saving goals. When it comes to monthly expenses for an apartment (or any living situation), “winging it” isn’t really an option.

Here’s what should be added, no matter what:

Rent or mortgage payments
Utilities (including Internet and cellphone)
Tenant or home insurance
Groceries
Loan payments (either to student debt or credit cards)

Now, keeping in mind that they’ll want to enjoy the area they’re living in, it’s important to include semi-fixed expenses that allow them to wind down or have some fun:

Monthly subscriptions (i.e. Netflix, Spotify)
Transportation (Ubers, bus or train fare, gas money or car payments)
Gym membership
Entertainment (i.e. dinner and a movie)
Savings (…we’ll touch on this later)

TIP: Their financial institution likely has an online app that will have a tracking feature. You can allocate certain amounts of money (or percentages of their income) to these categories for a certain period of time. For example, they can set it to X% of their income to be spent on groceries each month. These apps usually send notifications right to their phone when they’re spending too much in a certain category.

How do you know how much to budget for each item?

To start, remind them that they know their rent/utilities/insurance will stay the same month over month. Likely, their paycheque will too. Add up all of their monthly fixed expenses and subtract it from their monthly income. To get a more accurate number of what’s left over, use their monthly income less applicable taxes.

Once they have a good idea of how much “disposable” income they’ll have left over, you can start to allocate that towards the semi-fixed expenses. You can use a formula, like we laid out in our personal budget how-to, or you can ask them to use their best judgement. Strict budgeting can leave them feeling deprived, so it’s okay to have some wiggle room.

You should also prep them for the very first month of moving out, and maybe talk about creating a separate budget for that month. Alternatively, you can prepare them prior to the first month by advising them to be more frugal with spending and to set aside a “cushion”. When they move out, they’ll have to pay many expenses that won’t be recurring, but can rack up quite the bill. Here are a few things to consider:

The notion of first and last month’s rent. That’s a large chunk of money coming out of their account, and they shouldn’t only have this much money when it comes time to pay first and last.
Paying for parking. If they’re keeping their car, parking is usually an extra cost per month on top of their rent.
Buying “firsts” of everything. Cleaning products, kitchen utensils, tools they don’t even know how to use but will need at some point – the list is endless.
New furniture. They might not have any furniture of their own, or they might have to invest in things like storage units if they’re moving to a smaller space.
All the hidden costs of moving day. Another endless list of small costs that can add up. The good news: DIY-ing their move can save them (and you) money!

How they can budget and save at the same time:

Saving for a rainy day might sound like an impossible task if their extra disposable income is already so limited. But there are ways they can do both! Again, this comes down to setting goals – what exactly are they saving for? While it’s great (and smart) to have a rainy day fund, maybe they’re saving for a trip to Italy or a used car. Whatever it is, it’s important to have an end goal so they stay motivated to save while on a budget.

That’s where apps like Mylo come in. Mylo is a top Canadian saving and investing app that makes it super easy to put money aside by rounding up your purchases and investing the spare change. Simply connect your debit or credit cards to the app and every time you make a purchase, Mylo rounds up the transaction to the nearest dollar and invests the spare change in a diversified portfolio of low-cost ETF funds.

It's an easy, automatic way to save (and invest!) without changing your spending habits. With Mylo, you can save for multiple goals; perfect when still paying off student debt while building an emergency fund.

Find out how easy home and auto insurance can be.