The trend has been that more and more Millennials live at home than previous generations. According to this New York Times article, “One in five people in their 20’s and early 30’s is currently living with his or her parents. And 60 percent of all young adults receive financial support from them. That’s a significant increase from a generation ago, when only one in 10 young adults moved back home and few received financial support.” There have been a confluence of factors that have led to this trend. This generation graduated from college with “Nearly 45 percent of 25-year-olds, for instance, have outstanding loans, with an average debt above $20,000,” according to the same article. At the same time our country was entering recession due to the breakdown of financial systems and the housing market.
Many Millennials would like to move out of their parents house. However, getting there can be a challenge. Below, I outline some of the financial basics that need to be in place. You want to have a reasonable level of financial security before you take on the expense of your own household.
I have emphasised the importance of emergency savings before. In particular, this post titled, Why You Absolutely Need an Emergency Fund. An emergency fund is particularly important if you’re trying to move out on your own. Inevitably, an unexpected expense will arise or your income may be less stable than you anticipated. If you have an emergency fund in place you will be able to withstand these setbacks without throwing off your overall plan.
Without this cushion you might end up right back where you started (at Mom and Dad’s) or, even worse, incur credit card debt just to make ends meet. Practice new expenses (see below) to get an idea of how much money you would need to pay your bills and other costs for three to six months. Then set that amount of money aside in a high yield savings account that you don’t touch.
Student Loan Strategy
Depending on your circumstances you may extend your stay with Mom and Dad strategically. This article, which I was recently quoted in, examines this trend in more depth. Living at home a bit longer may be an opportunity to rapidly pay off student debt. Or at least, more rapidly than if you had to pay rent elsewhere. Creating a strategy to pay off student loans can be complex. Start by taking an inventory of your loans. This includes things like the current balance, beginning balance, minimum monthly payment, interest rate and lender etc. Also, consider the amount of debt in relation to what you are able to pay, as well as repayment plan options. The Federal Student Aid website is a resource to help you get started.
Practice New Expenses
Make a budget of future costs and practice saving that amount. Research the cost of rent, utilities, food, transportation etc. Let’s say monthly expenses are an additional $1,700. Practice saving that money now. This could go toward building up your emergency fund or paying off student debt. Not only will the savings improve your financial situation but you’ll also be used to the expenses associated with living on your own.
Build an emergency fund, create a plan to pay off student debt and practicing future expenses by setting that money asside. These strategies will help you move out of Mom and Dad’s house as well as SaveUp!
This post was written by SaveUp’s personal finance contributing writer, Catherine Hawley, CFP®.