Just when you thought you finally had all the freedom with a livable paycheck! Anyone that has the chance to live with their parents while they are getting started with their career should seriously consider it (of course, assuming there’s a healthy environment at home.) The amount you can save on rent, utilities, food etc. can add up to a nice down payment in just one or two years.
Sarah, a friend from my old office, lived in an apartment with a roommate for a year after college in the same city as her parents, and thought it was getting too expensive. She decided to move in with her parents for the time being as they offered free rent and home-cooked food. Because she had more funds freed up she spent more on dining out, entertainment and clothes, and wondered why she didn’t have any savings.
Life before saving:
Sarah makes $1950 per month after taxes. Living in an in-city apartment she was spending monthly:
$950 Rent and Utilities
$250 Car Expenses
$550 Dining Out and Groceries
$150 Student Loan Payment
$450 Clothes, Entertainment, Travel etc.
Total: $2350
Of course, it started to build up on her credit card.
Now, that Sarah was living with her parents - the question was how to make saving work for her. She was still spending all she earned, and she wanted to buy a home. For someone that likes and is used to spending more than she has, forced saving had to be the answer.
Getting to Savings:
She finally sliced her credit card and asked her parents to open a separate ING savings account for her. Every month, Sarah gives her parents a $1200 check for “rent” or forced savings. They will only deposit it in this account, where Sarah can’t access it until she’s ready to move out and buy a home. The only caveat was it should pay off her credit card balance first before being saved. If she earns a raise, the increase will added to her “rent” check.
Life with savings:
After 3 months, she has paid off her credit card balance, and is now spending the next 18 months saving up almost $22,000. What a great down payment for a home! Her monthly spending now looks like this:
$300 Car Expenses (she now lives a little farther from work/friends)
$150 Dining out and Entertainment (she now takes her lunch to work everyday)
$150 Student Loan Payment
$50 Clothes and Miscellaneous
$50 Local Travel (including camping and a short road trip)
Total: $700
She has even made a game of seeing how little she can spend each month, with some of her friends helping her find free activities to do together. After all, it helps them too.
Her parents also feel great because they wanted to help her buy a home, but don’t have the savings to offer. They are giving her what they can: A place to live and eat for free in order for her to save. Sarah’s decision to live at home is of course a compromise in privacy and living under her parents rules, but she knows this is temporary - there’s a definite end date. She is committed to it, and at the end of her year and a half of saving, she will be able to buy something of her own. Also, she’s now trained herself to spend much less and make lifestyle changes for her big goal of having her own place!
As Sarah mentioned, spending those 12 or 24 months with your parents, might just ensure that you’ll never need to live with them again.
