Figuring out how much your shelter costs each month is super important for managing money. It helps you create a budget, understand where your money goes, and plan for the future. This essay will break down what “Shelter Cost” means and give you a simple example of how to calculate the Shelter Cost as a part of the Simple Needs and Savings Plan (SNSP). The SNSP is an easy way to see how your money can be used to cover basic needs, savings, and fun stuff.
What is Shelter Cost?
Shelter Cost is the total amount of money you spend each month to have a place to live. This includes things like rent or mortgage payments, but it also includes other related expenses.
Components of Shelter Cost
Shelter cost isn’t just the big monthly payment for your house or apartment! It includes all sorts of other expenses. Let’s break them down to help you get a clear picture:
First, you’ve got the big payment:
- If you rent, this is your monthly rent payment.
- If you own a home, this is your mortgage payment (the money you pay the bank for the house).
Then, there are utilities:
- Electricity: For powering your lights, appliances, and electronics.
- Gas: For heating, cooking, and sometimes powering other appliances.
- Water and Sewer: For the water you use and the waste removal services.
Next, consider other costs:
- If you rent, you might have renter’s insurance to protect your belongings.
- If you own, you’ll likely have homeowner’s insurance to protect your home.
- Property taxes: Money paid to the local government, if you own a home.
Finally, think about maintenance and other upkeep costs.
For example:
| Type | Description |
|---|---|
| Repairs | Fixing things that break, like leaky faucets or broken appliances. |
| Cleaning Supplies | You might need to buy these for daily or weekly upkeep. |
| Landscaping | Mowing the lawn or taking care of the yard, if you have one. |
Example Shelter Cost Scenario: Renting an Apartment
Let’s imagine Sarah, who rents an apartment. We can calculate her shelter cost. This will include her rent and some other costs that she pays each month.
Sarah’s rent is $1,200 per month. That’s the first, and probably largest, part of her shelter cost. It pays for the right to live in the apartment. Next, she pays for her utilities. Utilities usually includes things like electricity, gas, and water.
Here’s the scenario:
- Rent: $1,200
- Electricity: $100
- Gas: $50
- Water/Sewer: $30
- Renter’s Insurance: $20
Adding all of these together gives you Sarah’s total monthly shelter cost. In this case, it would be $1,400.
Example Shelter Cost Scenario: Owning a Home
Now, let’s look at an example of someone who owns a home. This person will have different costs than someone who rents.
Let’s say, John owns a house. Here’s how his costs might look:
- Mortgage Payment: $1,800
- Property Taxes (monthly): $300
- Homeowner’s Insurance: $100
John also pays for his utilities. This includes things like electricity, gas, and water. He also should set aside money each month for maintenance and repairs to his house. It is usually better to do this than to pay for a repair all at once. A good rule of thumb for a house would be 1% of the house’s value a year, or about 1/12th per month.
Here’s more of his monthly expenses:
- Electricity: $150
- Gas: $75
- Water/Sewer: $65
- Home Maintenance Savings (for repairs, etc.): $200
Adding all of these up gives John’s total shelter cost. In this case, it comes out to $2,690 per month.
Calculating Shelter Cost for the SNSP
Once you know your monthly shelter cost, it’s easy to plug it into the SNSP. The SNSP is a simple way to budget your money: You account for your essential needs first, then savings, and then fun money.
First, determine your shelter cost, as we showed in the examples above. Add up all of your housing-related expenses. Next, determine your total income after taxes. Then, the shelter cost goes into the “needs” section of the SNSP. This is because having a place to live is one of your most basic needs.
The SNSP is super flexible. Remember the overall goal is to give your money a job to do so that you do not spend too much money. You can change the way your income is spent each month based on your income. For example, if you want to save a little more one month, you can cut back on entertainment or eating out.
Here is a very simple example of what the SNSP might look like, showing how the shelter cost fits in:
- Income: $3,000
- Needs: Shelter Cost ($1,400 or $2,690 in the examples above), Food, Transportation, and other essential needs.
- Savings: Set a certain amount to save to meet your goals.
- Wants: Things you want to buy like entertainment, dining out, and any fun stuff.
Why Shelter Cost Matters in a Budget
Knowing your shelter cost is crucial for building a budget that helps you manage your money. It helps you understand how much of your income goes towards your housing.
If your shelter cost is very high compared to your income, it can make it hard to save money or pay off debts. It might mean you need to consider finding a cheaper place to live or finding ways to increase your income.
If your shelter cost is a smaller part of your income, you might have more money left over for savings, investments, or fun activities. The key is to be aware of this big monthly expense.
Here’s a simple table showing how shelter cost impacts a budget:
| Shelter Cost | Impact on Budget |
|---|---|
| High | Less money for other expenses, possible financial strain |
| Moderate | Manageable, allows for other spending and saving |
| Low | More financial freedom, potential for saving and investing |
Tips for Managing Shelter Cost
There are several things you can do to manage and potentially lower your shelter cost. It’s not always possible, but it’s worth exploring these options.
First, look for ways to save money on utilities.
- Turn off lights when you leave a room.
- Adjust your thermostat to save on heating and cooling.
- Unplug electronics when not in use to save on “phantom” energy costs.
Secondly, if you rent, consider finding a cheaper apartment or house. If you own a home, refinancing your mortgage could potentially lower your monthly payments. Another way to save on rent is to consider getting a roommate.
Another thing to consider is to shop around for insurance rates to ensure you are getting the best deal. Insurance rates can vary a lot based on the provider. Try to see if your homeowners or renters insurance can be bundled with your auto insurance.
Finally, think about home repairs and maintenance.
- Do small repairs yourself to avoid hiring professionals.
- Create a maintenance schedule to prevent big problems.
- Learn DIY skills for common tasks.
Conclusion
Calculating your shelter cost is an essential step in understanding your personal finances and creating a budget. By identifying all the expenses associated with your housing, whether you rent or own, you can get a clear picture of where your money is going. Using this information, you can create a plan, such as the SNSP, that allows you to manage your finances and reach your financial goals, whether it’s saving for something fun, paying off debt, or investing for the future. Understanding shelter cost is a key skill in becoming financially responsible!