The short answer I have is to read one book and all or part of one series of books. Read Your Money or Your Life and read all or part of the Rich Dad, Poor Dad series of books. They’ve been around for a long time, so your library should have them.
Here’s my long answer.
Living on your own doesn’t need to be too complicated, but starting out (assuming that you’re starting from zero and making close to minimum wage) can be hard and require some compromises. Basic bills are: a) rent (or a house payment), b) utilities (heating, cooling and electricity), c) food, d) transportation, and e) clothing and other necessities (toothbrush, toothpaste, etc.).
On the other side of the fence is your income. In order to live on your own, you need a source of income. For most people, income comes from a job (i.e. working for someone else). For some, it comes from being self-employed (i.e. being your own business—like a painter or a dog walker). Others own businesses (like owning a gas station and hiring other people to run it). A few derive income from investments. These people have accumulated enough money to have their money work for them. A small example is having a savings account that pays you interest. Now multiply that by a couple million and that’s how those people derive income. Many people get their income from a mix of these four methods. There are skills and time required for each of these four methods, so if you are interested in expanding your income via any or all of them, you’ll need to learn more skills.
So before you venture out to live on your own, figure out what your income is. If you don’t have one, that means you need to get a job or figure out another way to get money coming in on a regular basis.
Okay, let’s say you opt to get a job. How much income do you have coming in? For the sake of argument, let’s say you’re taking home $1,000/month.
A good rule of thumb for housing is to go no higher than 1/3 of your income. You can go higher or lower, of course, but let’s say 1/3. So you have $333 to spend on rent. Unless you’re really lucky, $333 isn’t going to get you an apartment. But it will probably get you 1/2 of an apartment that you share with a roommate. Or it can get you a bedroom and use of a house that is rented to you and to other people. Or, perhaps it’s enough to make a payment on a trailer home that’s a rental for the time being. The task then is to figure out the best option for you, and you can look for deals by talking to everyone you know, looking in the paper, looking online and looking in neighborhoods that you might be interested in.
Not included in this equation is the damage deposit, and first and last month’s rent which may be required by your landlord. This is a bitch and can add up to a lot of money. If we are talking $333 in rent, then you are talking about putting up $1000 immediately before you even set foot in the place. I find your best bet is to just keep looking until you find a landlord who’s willing to waive that (many will). You just need to convince them that you’re not going to trash the place and that you’re going to pay rent on time for the agreed period (usually 6 months or a year).
Utilities- gas and electric, say $75/month assuming you’re splitting them with one other person. Conserving and finding a place to live that is energy efficient will help keep this in control.
Food- $250/month. I’m guessing, but I know I lived on about $200/month ten years ago. This is hard for guys especially since we don’t know how to cook. If you eat out all the time, it can be a lot higher. If you eat rice and beans (and other nutritious yet cheap food) you can do alright. Do you have to drink soda every day, or can you get by on water? It takes a lot of self discipline to keep this expense in control. Learn the basics of nutrition and learn how to cook a few things and you should be fine.
Transportation- If you own a new car and are making car payments and are driving to work figure $550/month. Or scale that back with a $1,500 used car that you buy for cash and maybe you’re talking $200/month. Or scale back to a bus pass and you’re talking around $45/month (I’m guessing). Or scale that back to a bicycle or walking and you’re adding an incremental cost to your food bill.
Here you need to figure out whether your job is convenient to where you live or vice versa. If the distance is not small, but you can get there by bike or bus, no problem.
Clothing and other necessities- You need clothes for work, mainly, plus others for other stuff. You can buy things full price at a department store, or you can buy them on the clearance rack or at a discount store (or Wal Mart or Target, which now have decent work wear, especially for young people who aren’t fat). With clothes and with the other stuff, there’s a skill involved in being a somewhat knowledgeable shopper. For example, you can buy some standard wardrobe items (black pants, khakis, blue jeans, long sleeve shirt, short sleeve shirt, brown shoes/belt, black shoes/belt) and use them for multiple purposes.
So the trick is to get those expenses to fit within your budget, which is $1,000. After you’ve done that for a couple of months you probably have a handle on living on your own. The trick is to stay reasonably disciplined and to keep track of where your money is going. The other trick is to avoid or anticipate “surprise” expenses, such as a big doctor bill or replacing something that breaks. It’s hard to do.
To get from that basic starting point to your dream job and lifestyle, you need to increase your budget. So let’s say you do a really work at your job and you get a promotion or a bump in pay. So now you’re taking home $1,250 instead of $1,000. What now? Well, you can either start spending a little bit more on food, more on clothes, kick out your roommate and have the apartment to yourself, or you can live the same way you have been and start saving that extra $250. Let’s say you want to take a class to learn a skill so that you can earn more money in a different job. So that $250 goes toward paying for your education. You finish school and land that better job, so now you’re taking home $1,500. Again, how will you use that extra money?
So along the way, you’re earning income but another tool you can use is debt, which is borrowing money from someone else. Debt can be a negative or a positive. A negative example is that you get a credit card and you use it to buy an Xbox, an HDTV, and a sound system. So you’re borrowing money to buy stuff that isn’t going to pay you back, and you’re paying extra for the privilege of borrowing the money (paying interest). A positive example can be using debt to buy a home, an education or another investment. So, for example, when I decided to buy a townhome, I paid $3,000 of money that I had saved and borrowed $107,000 from the bank (that’s a mortgage). Over time, I paid $800 mortgage payments (so that’s like my rent payment). The difference is that every $800 I pay gives me that much more ownership of my house. The bank is still making money off me by charging me interest, but now that I’ve owned it for 4 years and home values have gone up, I will be able to sell my home for $160,000 (let’s say). With that $160,000, I can pay off my $107,000 loan and pocket $53,000. So by borrowing $107,000 (and putting up $3,000) I will get back $53,000. Let’s not forget that I made $38,400 in mortgage payments ($800×12 months x 4 years), but once I sell, it’ll be as if I lived there for free, plus my investment made an extra $14,600 for me. Regardless, now I have $53,000 to work with this time instead of $3,000. Debt used for education can similarly pay you back with better career opportunities (and a better salary).
One of the maxims of the Rich Dad, Poor Dad books is “live beneath your means and then increase your means.” What living beneath your means does is free up some cash that can be used (when the opportunity presents itself) to increase your means (a down payment on a home, for example). And, debt can multiply the power of the extra cash that you do have (like my home example above).
So those are mostly the variables that you need to look after. There are others, of course, but start by mastering those. It’s not hard to factor in other expenses and incomes with some practice.
The other thing to keep in mind is that money comes into and goes out of your life in waves. Someday, you’ll find yourself owing a lot of money that you don’t have. A few years later, you’ll get money from an unexpected source and the days when you had money problems will seem like the distant past. So count on some acceleration and braking as time goes on and try to minimize the braking.
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