You may be thinking about moving out, but are you financially ready? There are several things to consider beyond the cost of rent or mortgage payments:
Your credit report and credit score may affect your options for moving out on your own.
A credit report is a record of how you have used credit and whether you pay your loans and bills. A credit score is a numerical rating that acts like a snapshot of your financial health at a specific point in time.
Most landlords will want to run a credit check on you as a potential tenant to be sure that you have a good financial history and will pay your rent on time. If you don’t have a credit history yet, a landlord may ask you for a guarantor—that is, a parent or guardian with a good credit history, who agrees to pay for you if you’re unable to pay your rent.
Financial institutions will run a credit check before offering you a mortgage or setting an interest rate. It is important to check your credit report to make sure the information in it is accurate.
Read FCAC’s publication Understanding Your Credit Report and Credit Score to learn how credit rating agencies track your financial history and how to improve your score. It’s a good idea to check your credit report at least once a year.
Find out how to get a free copy of your credit report mailed to you by Canadian credit rating agencies. These agencies charge a fee if you want to get your credit report online. You can also order your credit score for an additional fee.
Most landlords will request your Social Insurance Number (SIN) to run a credit check on you. If you do not feel comfortable sharing your SIN, you do not have to provide it. The landlords will still be able to get your credit history using other forms of identification.
Once you have confirmed that your credit report is accurate and probably won’t be an obstacle to renting or buying a home, you should start to plan for your move by identifying moving-related expenses and making a budget.
If you already have a budget in place, it will be easy for you to test some scenarios to see whether you can afford them.
If you do not have a budget, use FCAC’s Budget Calculator to create one.
Whatever the type of budget you are working on, you need to understand the difference between your needs and your wants. This is a crucial step in preparing to live within your budget.
Need – something you must have, such as shelter, basic clothing, food or contents insurance
Want – something you would like but do not need, such as cable TV, designer clothing or eating out every week
In this case, your main need is for shelter. Other important needs are contents insurance and liability insurance to protect yourself and your possessions if anything goes wrong.
Almost everything else can be considered a want. But you should still prioritize your wants. List your wants in the order that is most important to you. This can help you to compare your options and figure out which accommodation best fits your situation and budget. Priorities could include:
Here is a sample worksheet to help you identify your wants. Rate each item from 1 to 10 based on how important it is to you.
Moving out may be a step you are thinking about taking in the near future or a couple of years from now. No matter when you hope to move out, you should set financial goals and make a plan to meet them.
Things to consider when setting your financial goals:
Life is full of surprises, and you never know when something unexpected will happen. Everyone should have an emergency fund for unforeseen events. The fund should cover your living expenses for three to six months. Be sure to include regular savings in your budget so that you can build an emergency fund and put yourself on a solid financial footing.
In an ideal world, you would have no debt before moving out on your own. However, not everyone is in this position. For example, you may have student loans. As part of your overall budget, you need to plan for debt repayment. This is especially important when you are considering your monthly housing costs. If you have debts to repay, you might not be able to afford certain properties, or might need to consider having a roommate to share expenses.
To learn more about managing your debt, visit the Dealing with Debt section.
Once you have determined your needs, wants and financial goals, it’s time to test your budget. Enter all the figures into your budget worksheet. Check that you have more money coming in than going out.
If you have a shortfall, review to see where you can cut back or get rid of some expenses. Focus on reducing your wants—for example, cut spending on entertainment rather than the amount of insurance you carry on your rental unit or property. Another option is to find more money to cover the shortfall.
If you have the right balance of income and expenses, try following this new budget for a few months. Make sure you can live the way you want within the spending limits you have set. If you can’t, go back to your budget and rework the numbers again.
During your budget test run, put money that you are not spending into a separate account. You can use the money to save toward your financial goals, build an emergency fund or pay down your debts.