Ready To Move Out While Earning Irregular Income? Start With These 5 Steps
Moving out and living independently is probably many people’s goal. But for freelancers, gig workers, commission-based employees and self-employed workers whose income changes from month to month, it’s risky. So when is the best time to move out of your parent’s house if your income is irregular?
Cody Schuiteboer, finance expert and CEO of Best Interest Financial, shared five things that will help you decide if you’re ready.
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1. Calculate Your Real Monthly Income First
Before you even plan to move out, you need to know your actual monthly income since it fluctuates. Schuiteboer recommended averaging your income for the last 24 months. Gather your bank statements or 1099 forms for the past two years and divide your total earnings by 24. This gives you a more realistic picture of what you consistently earn.
"The biggest mistake I see in terms of housing decisions is to anchor on the best three months and sign a lease that they can afford only during good quarters," Schuiteboer said. "Your actual income is calculated based on the average for 24 months. All the amounts received in excess go to your savings account, not to the night out and sushi bar on Saturday evening."
2. Keep Housing Costs Lower Than Most People
A general rule of thumb is that your total monthly housing costs should not exceed 30% of your gross income. For someone with irregular income, however, Schuiteboer suggested no more than 20% to 25%. “The smaller ratio allows some margin of safety for covering rent during slower periods,” he said.
A lower percentage may mean choosing a smaller apartment, getting a roommate or staying home longer while saving. It can also protect you from falling behind or relying on credit cards to stay afloat.
3. Build a Bigger Emergency Fund Before Leaving
Most finance experts advise saving at least six months worth of living expenses in an emergency fund. According to Schuiteboer, irregular income earners should have at least six to nine months set aside before deciding to move out.
“For irregular earners, having an emergency fund is not optional,” Schuiteboer said. “The peace of mind that this gives you is invaluable, even if it means living with family for a little bit longer.”
Keeping that money in a high-yield savings account can also help it grow while staying accessible. Many HYSAs offer interest rates ranging from 4% to 5%, which is significantly better than traditional savings accounts.
4. Stress-Test Your Budget Using Your Worst Quarter
Before signing a lease, Schuiteboer recommended looking at the lowest-earning three-month stretch from the past two years.
“Can you pay your rent, utilities, minimum debt payments and everything else from this income stream, using only your savings and avoiding a credit card? If yes, you are ready to move,” he said. Otherwise, it’s a good idea to stay at home a few more months as you increase your savings and budget accordingly.
5. Don’t Forget the Hidden Costs of Moving Out
Rent is only one part of the cost of living independently. Many first-timers underestimate how expensive moving out can be. There are several upfront costs including the security deposit, first month’s rent, utilities, renters insurance, furniture, kitchen supplies and household basics.
“In most American metros, such move-out expenses can vary between $4,000 and $8,000 in just the first two months,” said Schuiteboer. “The biggest mistake you can make at this point is to underestimate it and start living off credit cards.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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