How To Budget as a First-Time Renter

One of the first things you’ll need to think about – beyond personalising the place – is how to budget effectively every month. Creating a realistic budget is essential for managing your finances when renting a property. Proper budgeting ensures you can cover your monthly expenses, save for deposits, and avoid financial pitfalls. Your rent should not exceed a certain percentage of your take home pay or annual salary, and it’s important to consider all monthly outgoings and ongoing costs when assessing affordability.

Here are some tips to help you create an effective budget for rent and living expenses:

• Shop around for utilities and other services to save money and reduce ongoing costs.

Introduction to Renting

Renting a property for the first time can feel overwhelming, but understanding the basics will help you make confident decisions. With more rental properties available than ever, first-time renters need to be aware of the key steps and costs involved. Before you start your search, think about your total annual rent and how much you can afford to pay each month. It’s important to factor in not just the monthly rent, but also other bills like council tax and utilities.

The Tenant Fees Act has made renting more affordable by capping tenant fees, but you should still be aware of any costs that may arise. When considering a rental property, look at the location, transport links, and the overall affordability of the property. Make sure you can comfortably afford the rent and all associated expenses, so you don’t stretch your budget too thin. Taking the time to understand these factors will help you find a property that suits your needs and financial situation.

Calculate Your Monthly Income

The first step in budgeting is to determine your monthly income. This includes your salary, any additional income from part-time jobs, freelance work or benefits. When calculating how much rent you can afford, use your take home pay (the amount you receive after tax and deductions) and consider your annual salary. Make sure to account for all sources of income to get a clear picture of your financial situation.

Credit and Financial History

Your credit history is a crucial part of the rental process. Landlords and letting agents often carry out a credit check to see if you have a good track record of managing money. A strong credit report can make it easier to secure a rental property, while a limited or poor credit file might mean you need a guarantor or a larger security deposit.

Before you apply for a property, it’s a good idea to check your own credit report and take steps to improve your credit score if needed. This could include paying off outstanding debts or making sure you’re registered on the electoral roll. Some landlords may also require you to have renters insurance to protect their property and your belongings. By understanding your credit history and taking action to strengthen it, you’ll improve your chances of being accepted as a tenant.

Determine Your Monthly Rent Budget

Most sources indicate that the average Scottish renter spends between 24% and 26% of their income on rent. A general rule of thumb is to allocate no more than 30% of your monthly income to rent. This helps ensure you have enough money left for other essential expenses. Use this guideline to calculate how much you can afford to spend on rent each month.

When setting your rental budget, base it on your take home pay and annual salary, and make sure to factor in all monthly outgoings such as bills and other recurring expenses. Landlords or letting agents may conduct a rent check or multiple rent checks to verify you can afford the rent payments, and having a good credit history can help you pass these checks.

For example, if your monthly income is £2,000, you should aim to spend no more than £600 on rent. Make sure you can comfortably pay rent each month after accounting for all other expenses. Keep in mind that rental prices can vary significantly depending on the location and type of property. It’s also important to note that rent affordability can vary significantly depending on location within Scotland, with some areas experiencing higher rent-to-income ratios.

Finding a Rental Property

Searching for the right rental property can take time, but being prepared will help you find a place that fits your needs. Start by researching the local rental market to get an idea of what’s available within your budget. Consider practical features like the property’s exterior condition, whether there’s a parking space, and the energy performance certificate, which shows how energy efficient the property is.

Working with estate agents or property managers can make the process smoother, as they can help match you with suitable properties. When viewing a property, pay attention to any maintenance issues and ask questions about the notice period, how much notice you need to give if you want to move out, and whether you’ll need the landlord’s permission for things like redecorating or keeping pets. Taking these steps will help you find a rental property that meets your requirements and avoids surprises down the line.

Account for Initial Costs and Tenancy Deposit

When renting a property, there are several initial costs you need to consider:

• Holding Deposit: You may be asked to pay a holding deposit to reserve the property. This is typically capped at one week’s rent and is used to secure the property for potential tenants while your application is processed.
• Deposit: Most landlords require a tenancy deposit, which is usually capped at five weeks’ rent for properties with an annual rent below £50,000, or six weeks’ rent for properties above this threshold. The landlord must protect your tenancy deposit in a government-approved tenancy deposit protection scheme. You are legally entitled to have your tenancy deposit returned at the end of the tenancy if there are no issues.
• First Month’s Rent: In addition to the deposit, you’ll need to pay the first month’s rent upfront. You should plan for regular rent payments and ensure you are paying rent on time.
• Agency Fees: If you’re renting through a letting agency, you may need to pay agency fees. These can include administration fees, credit check fees, and inventory fees.

Landlords may require a rent check or rent checks to verify your ability to pay rent, and having a good credit history can help you pass these checks. Landlords must also check your immigration status before you can rent a property. Make sure the landlord agrees to any special terms and conditions, and as potential tenants, ensure you fully understand these before committing.

Tenancy Agreement and Responsibilities

A tenancy agreement is a legal contract that sets out your rights and responsibilities as a tenant. It will detail important information such as the amount of rent, when and how to pay your rent, and the length of the tenancy. You’ll also find terms about paying council tax, utility bills, and how to look after the property.

It’s essential to read your tenancy agreement carefully before signing. Make sure you understand the notice period required if you want to end the tenancy early, and any penalties that might apply. As a tenant, you’re responsible for keeping the property in good condition and reporting any problems to your landlord. If you’re unsure about any part of the agreement, don’t hesitate to ask for clarification before committing.

Plan for Monthly Expenses

In addition to rent, there are several other monthly expenses you need to account for:

• Utilities: This includes gas, electricity, water and internet. Using utility providers websites can sometimes enable you to get an estimate of your monthly bills. Shop around to find the most cost effective deals, using comparison websites or referral codes, to save money on your utility providers and reduce ongoing costs.
• Council Tax: Council tax rates vary depending on the property’s location and value. Your landlord or letting agent may be able to advise which council tax band your property belongs to. The local council is responsible for setting council tax rates and handling administrative procedures.
• Insurance: Renters’ insurance can protect your own belongings in case of theft, fire, or other damage. You may also want to consider home insurance for additional coverage. Factor in the cost of insurance premiums.
• Transport: Consider your commuting costs, whether it’s public transport, fuel or parking fees.
• Groceries: Budget for your weekly grocery shopping and any potential delivery costs of this.
• TV Licence: You will need a TV licence if you watch live TV or use BBC iPlayer in your rented property. Make sure you understand your legal obligations and whether you or your landlord are responsible for holding the licence.

Remember to include all monthly outgoings and ongoing costs in your budget, including paying rent on time, to ensure you can afford your tenancy.

Setting Up Your Rental

Once you’ve secured your rental property and signed the tenancy agreement, there are a few important steps to take before moving in. You’ll need to pay your first month’s rent and the deposit, as well as set up payments for council tax and utility bills. Setting up a direct debit for these regular payments can help you stay on top of your finances and avoid missing any deadlines.

Before you settle in, take photos and make notes of the property’s condition to protect yourself from disputes when you move out. Record meter readings and inform utility providers of your move-in date to ensure you’re only charged for your usage. Finally, keep the contact details of your landlord or property manager handy in case you need to report repairs or have any questions about your new rental home. Taking these steps will help you start your tenancy smoothly and with confidence.

Save Money for Emergencies

It’s important to have an emergency fund to cover unexpected expenses, and to save money for unforeseen costs like repairs or job loss. Set aside a portion of your income each month to build your emergency fund.

Avoid Financial Pitfalls

To avoid financial pitfalls, consider the following tips:

• Track Your Spending: Use a budgeting app or in-app trackers from your bank (or even a spreadsheet) to track your income and expenses, including ongoing costs such as utilities and subscriptions. Monitoring these ongoing costs helps you stay on top of your finances and identify areas where you can save money.
• Set Financial Goals: Establish short-term and long-term financial goals, such as saving for a holiday, buying a car or purchasing a home. Having clear goals can motivate you to stick to your budget and find ways to save money.

Budgeting for rent and living expenses is crucial for managing your finances effectively, especially as salaries in many industries remain stagnant. By calculating your monthly income, determining your rental budget and planning for monthly expenses, you can create a realistic budget that ensures financial stability. With careful planning you can begin to look for your first rental property, knowing that the sums all add up.

Looking for your first rental property? Why not pop in and see us at Dwello? You’ll find us at 117 Byres Road, Glasgow. Or you can view all of our properties online here.