Mathematics with Business Applications

Chapter 3:

Business Math in Action

Budgeting for Your First Apartment

A major milestone of adulthood is getting your own apartment. That means saving enough money to move, and knowing how to spend wisely once you’re in. You’ll get there faster if you learn to use a budget. Start by gathering the following materials:

1. Pen and paper
2. Calculator
3. Paycheck stub
4. Bills and receipts for at least two months. Three or four months would be better. Include credit cards, cell phone, health insurance, student loans, anything you will be paying for when you’re on your own.
5. A record of how much cash you spend in a month. Collect ATM receipts and bank statements to make sure.

Use two sheets of paper. One should be headed Fixed Expenses, the other, Variable Expenses. On the Fixed Expenses sheet, list bills you pay every month, such as student loans, car payments, pensions, insurance premiums, Internet access, and phone.

On the Variable Expenses sheet, list everything else. The reason you need to collect two or more months’ worth of receipts is that some expenses, such as hairdressers, may not happen every month. You don’t want to leave those out of your budget, you want to average them into your monthly expenses. Use the following general categories:

• Clothing
• Transportation
• Health care
• Entertainment
• Education
• Reading materials, personal care, cash contributions, and misc.

Total the expenses in each category, and divide by the number of months you used. The result is your average monthly Fixed and Variable Expenses. Deduct both sums from your monthly income, and you’ll see how much you have left over to save for an apartment and eventually pay rent. Experts suggest that you save at least three months’ rent before moving in. You’ll need one as a security deposit and another in case of emergencies.

Of course, rent isn’t the only new expense you’ll have. You will probably be paying for utilities as well. And groceries. And household cleaning items. How can you make an accurate guess as to what this will cost? Financial experts have guidelines about what people should spend-for example, 30% on housing, 8% on clothing, 9% on entertainment. A more realistic approach might be to look at what people under the age of 25 actually do spend.

Percent of Expenditures for People Under 25

(From the National Center for Education Statistics)

Compute how your own net earnings (your take-home pay) would translate to the percentages above. Round the numbers to give yourself a ballpark figure. For instance, allow 16% for food, 32% for housing, and so forth. Although the cost of rent and transportation may vary from city to city, the figures you come up with will give you a general idea of how well your current salary would support you. You will also see how you’ll need to change your spending habits in order to achieve your goal. Track those changes over the coming months. That’s your budget, and it’s one of the most powerful tools you will ever learn to master.