Co-authored by: Sydney Prewitt
As a young professional, there are many costs to consider when planning your budget. Let’s dive deeper into the real costs of housing, utilities, groceries, and credit cards.
Housing
There are two major types of housing expenses: rent and mortgage. If you are just starting your professional journey, it is likely that you will be a renter.
According to this site's data, the average rent in Indiana is $1,137 a month.
- Studio apartments average $1,005 a month, with an average size of 460 square feet.
- A one-bedroom apartment costs $1,137 a month on average and is 706 square feet.
- A two-bedroom apartment has an average rent cost of $1,340 a month and is 993 square feet.
Understanding average rent in your area can help you determine if the apartment you are considering is worth the cost.
As a general rule, experts recommend keeping housing costs no more than 30% of your take-home income on rent. This will ensure that you have room in your budget for other living expenses, daily expenses, and savings. Use this rent affordability calculator to determine what would be affordable for your current income.
When you decide to buy a home, it is time to learn more about the mortgage process.
The process to determine the monthly mortgage payment you can afford is like deciding what rent is affordable for you. However, there are more costs to consider. The Consumer Financial Protection Bureau (CFPB) has a list of five key factors to help you decide what is affordable for your budget. These include:
- how much you can pay monthly
- how much you can pay as a down payment
- the kind of loan you can get
- the interest rate
- any extra property costs
Considering these costs before you start your home search can ensure that you are able to maintain your mortgage payments.
The CFPB has a list of tools and resources for prospective homebuyers.
No matter your housing choice, you’ll need to budget for required and optional insurance coverage. If you have a mortgage, this coverage will be required. Even if your rental agreement does not require renter’s insurance, obtaining coverage is typically one of the most affordable ways to protect your belongings from damage.
Utilities
Another monthly cost related to your home is your utility bills. The important thing to remember about utility bills is that they may change based on how much you use the services. For example, your electric and gas bills may be higher in the summer and winter because of changes in the weather. When considering your budget, be sure to prepare for possible changes in utility bills. Many utility providers offer levelized billing options, where your average utility use across several or more months is divided to provide a more predictable monthly bill.
Groceries
When considering monthly costs, you need to budget for food and other household items.
In this 2024 report, the amount spent on different goods throughout the year is calculated. In 2024, $10,169 was spent on food, both inside and out of the home. This figure averages out to about $847 a month. While eating out generally does not factor into grocery costs, it is useful to understand the general cost of food. This cost is extremely personalized and reflects your household’s needs. Reviewing your own average grocery costs can help you adjust and create a budget that works for you.
Your grocery costs are another common expenditure that can change month to month. Reviewing past expenses can help you adjust your budget. This keeps your budget accurate and allows you to reference it to make responsible decisions.
Credit Card
Practicing good credit habits is a good way to build a solid credit score. Your credit score is used to determine your eligibility for loans and the rate lenders will offer. Responsible credit card use, on-time payment, and maintaining a credit utilization rate of 30% or lower can show that you are a responsible credit user. Avoid having a high balance. Aim to use 10-20% of your credit limit for the best boost to your credit score.
However, it is important to remember that you need to pay off the bill in its entirety before the due date. If you only make minimum payments, interest will begin to accrue on any remaining balance.
Understanding your credit line is important to prepare for its cost. Some cards come with an annual fee, late fee, or foreign transaction fee. In addition, understanding the annual percentage rate (APR) can help you make an informed decision about which credit card you are interested in applying for.
Learn more about building good credit here.
Learn more about balancing real-world finances for young professionals here.