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To estimate how much you’ll be able to save by living at home (and when you might be able to afford to move out), you should evaluate three key factors:
- Your income and expenses. Determine how much money you’re bringing in each month, and how much you’re spending (this includes any spending on debt repayments). The money left over is your monthly savings.
- Your living arrangements. Your expenses may still include some money to your parents for rent, food, or utilities. Be sure you understand how much your parents expect you to contribute to the household expenses, and when.
- Your commitment. If you’re trying to save as much money as possible each month, you should reduce your expenses as much as possible. The less you spend, the more you’ll be able to save.
Moving home to save money
Living with your parents can turbo boost your ability to save for a down payment. And it’s a strategy increasing numbers of young professionals who want to be homeowners are adopting.
One thing many neglects to do first is to find out how big a down payment they may need. There’s a persistent myth that you require 20 percent of the purchase price. But that’s not true. Down payments of 3.0 percent and 3.5 percent are common. Some mortgages require none at all.
Better yet, there are thousands of programs across the country that provide grants or loans to help first-time buyers with their down payments and closing costs. Be sure you know how much you’ll need before you begin to save.
Why you might be living with your parents
Pew Research Center reckons that, in 2016, 15 percent of all millennials aged 25-35 years were living with their parents. That compares with 10 percent of Generation X-ers in 2000 and 8 percent of early Boomers in 1981. Student debt, as you can see below, is a big reason.
Taking a wider age range, 18-34 years, the U.S. Census Bureau calculates that one-in-three young Americans lived at home in 2016.
But few of those 2016 millennials were slackers. Pew found only 5.7 percent were unemployed.
Of course, nobody knows precisely how many of the 24 million adult Americans living with mom and dad are there for strategically sound financial reasons. No doubt many are there because they lack the ability or drive to ever move out.
Others go back home because their parents depend on their support. The sheer growth in overall numbers suggests new drivers behind the phenomenon — for instance, saving for a down payment on a home.
How much might you save while living with your parents?
There are too many variables for us to give a dollar answer to the question of how much you could save when you go back home. We can give you a framework that will allow you to calculate your own pretty good estimate. Here are some of those key variables.
Your income and outgoings
Clearly, those with higher incomes can generally save more. But that’s not always the case.
It’s the difference between your income and “fixed” (meaning unavoidable, not discretionary) outgoings that determine your ability to save. Debt payments are the fixed outgoings that often reduce the most the amount you have left over for savings.
If you’re paying out large sums each month on student loans, an auto loan, minimum payments on store and credit cards and perhaps a personal loan, your progress are going to be slower.
In fact, it may be worth at this point suspending your savings ambitions and instead take time out to pay down some debt, especially on your plastic. Not only will that boost your ability to save more for later, but it will improve your finances — and perhaps your credit score — considerably.
And don’t forget: mortgage lenders pay close attention to your debt-to-income ratio when deciding whether to lend to you, how much you can borrow and the interest rate they’re going to charge you.
Your arrangement with mom and dad
You can add the amount you’re paying to your parents each month to your tally of fixed outgoings. At one extreme, many parents ask for nothing; not even a contribution to the food bill. At the other, you might have to pay your full share (one-third, if there are three of you in the home) toward all housing and living expenses.
That large contribution may arise because the parents need the cash or perhaps because they believe such tough love builds self-reliance in their kids.
The reason doesn’t matter. The sum you pay your parents is a fixed outgoing and that means it will affect your savings and debt-reduction targets.
Of all the variables that determine your savings, this is the one you most control. It’s probably the one you’ll like least because it’s all about self-discipline, sacrifice and self-denial.
To maximize your savings, you’re going to have to forgo many of life’s little (and big) pleasures. You’ll no longer be able to buy stuff on impulse or treat yourself on a whim.
You’ll need a seven-step plan:
- Analyze your current spending habits (there are spending-tracker apps for that)
- Identify where you can cut back
- Eliminate wasteful spending
- Track your outgoings
- Set goals for your savings
- Monitor your progress against the milestones you set yourself
- Create a feedback loop that lets you adjust your goals according to reality
The good news? Well, the better you are at implementing those seven steps, the shorter the time you’ll need to live with it. And, of course, the shorter the time you’ll be living with your parents.
Yeah, but how much really?
Time Money recently told the story of a single millennial who graduated in 2016 and who went on to be a paralegal with a big law firm. He claimed that, by living with his parents in Manhattan, he managed to save $10,000 in his first year of work.
Those variables described above mean your experience will likely be different. How much can you save?
Work out your savings goals
You can work out how much you could be able to save. Indeed, you should because setting yourself realistic goals is a key part of your seven-step plan. You can’t do that without working out what’s possible.
Start by deducting your monthly fixed outgoings from your net monthly (after tax) salary and any other income. Include in those fixed outgoings anything you truly can’t do without. We’re talking here about the costs of getting to work and staying alive.
That sum will give you your disposable income. And, in theory, you should be able to save all of that. But, in practice, it may not be that straightforward. There may be things you really can’t give up, no matter how motivated you are.
Just remember, every luxury you deem a personal necessity is going to lengthen the time before you can return to a normal lifestyle. And before you can first open your own front door to your own home.