In January 2022, Emma Wu (not her real name) moved out of her parents’ home and into a rental apartment on her own, but several months later, she regretted it.
“After paying $5,600 for the security deposit, which was equivalent to two months’ rent, I was left with about $15,000 in my savings account,” says the 32-year-old marketing manager.
“With a monthly income of $4,500, I thought I would have enough to continue paying my rent over the two-year lease and still have money left over to save or invest, but six months after moving out of home, my savings were hit unexpectedly – I had to contribute a few thousand dollars towards a family emergency, replace my desktop computer and refrigerator, fork out money to attend an overseas wedding, and pay for a medical procedure.”
Emma soon found herself struggling to afford her rent and other living expenses. Now, after 18 months of living alone, she has no intention of renewing her lease later this year, and will instead move back in with her parents so that she can grow her nest egg again.
“Besides those and other additional unexpected expenses, which ate into my savings, I had to furnish the entire apartment – a cost I hadn’t given much thought to before signing the lease – and furniture and appliances aren’t cheap,” she explains.
Moving out – whether to live alone, with friends or with your partner – is an important milestone, and one that many young people look forward to.
If you’re planning on leaving the family nest soon, how do you know if you can afford it? Are you financially ready to purchase or rent a property, and handle the ongoing expenses associated with moving out?
What to consider before signing on the dotted line
Financial planner Karen Tang says that there are several financial factors to think about before deciding whether to move out or stay put: “For starters, you should ask yourself if you have enough of a financial reserve to buffer against emergencies, and surplus cash flow to sustain the expenses of moving out – and if so, how long can these funds last?”
Expenses involved with living on your own may include, but aren’t limited to, rent or a mortgage repayment, utilities, food, household items and appliances, maintenance (repairs, replacements and servicing), home or tenant insurance, and part-time cleaning.
“And if your plan to live away from home doesn’t work out, do you have a Plan B?” Karen adds.
“Moving out requires financial discipline and responsibility. It also means that investing in your future may need to be put on hold. Take into account your spending habits, and assess your ability to manage your expenses wisely. Develop good financial habits such as tracking your expenses, avoiding unnecessary debt, and saving consistently.”
Financially ready to leave the nest? Here’s what you should still think about
Yu Shuwen believes that she is financially stable enough to purchase an HDB flat on her own. She recently applied on her own for a two-room apartment in Tengah, and is waiting to find out whether her application has been successful.
“I’ve shared a room with my sibling all my life and never had any personal space, which is why I’m eager to move out of home,” says the 35-year-old senior operations associate.
“As I’m only getting a small, two-room flat, I’m not worried about the ongoing costs involved with living there. And as I’m already paying for the utility bills and other household expenses for the place I’m currently living in, I know what to expect when I eventually start living alone. I didn’t get any financial help from my parents for my new flat in Tengah; I will be using my CPF funds to cover the costs.”
Even if you’ve determined that you’re in a good financial position to rent or purchase a property to live in, Karen says that long-term affordability should still be a top consideration.
For instance, when it comes to your mortgage, do you know what the monthly repayments are? And if the interest rate goes up, will it impact your cash flow?
“You should also look at your CPF fund,” Karen points out. “Bearing in mind that your CPF Ordinary Account (OA) gives you a return of 2.5 per cent per annum, you should strike a balance between using cash and CPF for your mortgage repayments. This decision boils down to balancing your long-term retirement needs (keeping money in our CPF OA gives us a good foundation to build upon), and your short-term requirements (monthly cash flow and meeting mortgage payments).”
Income stability should also be a consideration. How stable is your job or income? Does your current income source have growth potential? A stable job or a reliable source of income gives you financial security. Karen suggests assessing your employability in the job market, as well as opportunities for career advancement and salary growth.
Additionally, it’s essential to build an emergency fund before moving out. Karen says to strive for at least six months’ worth of living expenses.
“This fund will provide a safety net in case of unexpected events like job loss, medical emergencies, or major repairs, for example.”
Finally, she says to consider your debt situation.
“Do you have any existing debts such as a car loan or credit card debt? If you have any debt, focus on paying it off before you move out. This will free up more of your income to spend on other things. Also, being a guarantor means you are liable for a certain amount of debt.”
Avoid these financial mistakes when moving out
In her years as a financial planner, Karen has seen some young people make financial mistakes after deciding to buy or rent their own place.
Overspending on housing is one. Rent or a mortgage payment is often a significant expense, especially when living alone. It’s therefore crucial to set a realistic budget, and avoid the temptation of splurging on a place that is beyond your financial means. Before committing to a rental or property purchase, work out your cash flow.
Ignoring your retirement savings is another, she adds.
If you’re just starting out in your career, retirement may seem far off, but it’s important to begin saving for your retirement as early as possible. For compound interest to work its magic, it needs time to grow.
The third mistake is relying on your credit cards exclusively or excessively. Says Karen: “It’s convenient to pay with credit cards, even more so when banks and merchants dish out rewards month after month. Excessive usage and not paying the balance owed in full and on time can lead to high-interest debt.”
Emma wishes she’d been more prudent before deciding to move out on her own, or that she’d moved in with a friend or gotten a housemate so that she could save on the rent and household bills.
“I had mistakenly assumed that I was in a good financial position to rent, and was naive to think that I wouldn’t need to access my rent money for emergencies. So far, since living alone, I’ve not been able to save much because my rent is more than half of my salary, and whatever I have left over at the end of the month goes towards my living expenses. It’s not an understatement to say that I sometimes struggle to make ends meet,” she says.
“Whether you decide to rent or buy, remember that both are very different strategies, with different consequences,” Karen points out.
“It’s good to have an idea of the different types of expenses you’d incur for each. Listing them down and putting a realistic budget against each item will give you a better sense of your monthly outflow. Include a healthy buffer so that you are better prepared when your expenses are higher-than expected.”
How much are women spending on housing?
According to the results of the Her World What Women Want Survey 2023, 42.3 per cent of about 800 respondents shared that housing loans were their biggest source of debt. The survey also revealed that 52 per cent of women don’t pay a mortgage or rent, and those who do spend a monthly median of $1,292.60 on their mortgage or rent.