Moving Back Home? Consider These 4 Ways to Make the Most out of Living With Your Parents

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Moving Back Home? Consider These 4 Ways to Make the Most out of Living With Your Parents

By MIKA BHATIA

For the first time in over 130 years, 18- to 34-year olds are more likely to live with their parents than with a spouse or partner.

A recent Pew Research Center analysis found that in 2014, 32.1 percent of Americans in this age group lived in their parent(s)' home, compared to:

  • 31.6 percent who lived with a spouse or partner
  • 14 percent who lived alone, as a single parent or with roommate(s)
  • 22 percent who lived with another family member, a non-relative or in group quarters, such as a college dorm.

Living with your parents could allow you to save a significant amount of money on rent; a Trulia report showed that the average median monthly rent cost across the 100 largest U.S. metros in September 2015 was $1,562.

If you're earning an income, it might be tempting to think that all the money you're saving on rent is more money for spending, socializing or other discretionary expenses. But this is a short-sighted approach, whereas putting this money toward your future could benefit you significantly in the long run.

Are you moving back in with your parents? Here are four ways to financially make the most of it:

1. Plan and set expectations beforehand.

Before you make the move back home, it may be a good idea to consider the following questions and discuss with your parents as necessary:

  • How long do I plan to live at home? Figuring out a general timeline can be a good starting point for determining your budget and savings plan while you're at home. Communicating this timeline to your parents can also help ensure you're on the same page about your plans.

  • Am I expected to pitch in for rent, food and other bills? Your parents may not have made you pay up when you were living at home as a kid, but it's possible that their expectations are different this time around. Before you move in, make sure you understand if and how much you're expected to contribute each month.

  • What will my lifestyle look like while I'm at home? Maybe you're used to staying out all night or going out to dinner with friends every evening, but it's possible that Mom and Dad might expect something different while you're living under their roof. Proactively discussing these expectations could help you steer clear of misunderstandings later.

2. Save for the future.

Consider taking advantage of the money you may be saving on rent to save for your future. Here are some smart ways you can do so:

  • Deposit funds into an interest-bearing account. You can choose from a range of products, including savings accounts, interest checking accounts, money market accounts or certificates of deposits (CDs).

  • Build an emergency fund. An emergency fund can provide a financial cushion if you face an unexpected crisis down the line, such as job-loss or an unexpected tax bill.

  • Contribute to a retirement plan. Retirement might seem far off into the distance, but years from now, you may be thanking yourself for planning early. Types of retirement plans include 401(k)s, traditional IRAs and Roth IRAs. The IRS offers explanations of these and other plans as well as guidance on how to choose which one is right for you.

  • Some experts recommend trying to set aside 10 to 15 percent of your income in your 20s, and 15 to 25 percent of your income in your 30s.

3. Pay off existing debt.

If you have a student loan, credit card balance or other form of debt, you may want to consider using some of the money you're saving to pay those off. By applying extra funds to paying off your debt, you could end up paying less in total interest.

Two of the most popular debt repayment strategies include the debt snowball method and the debt avalanche method.

With the debt snowball method, you pay off your smallest balances first. This can help create momentum as you build up toward tackling your larger debts.

Using the debt avalanche method involves paying off your balances with the highest interest rates first. This method can save you money and time, because debts with higher interest rates will cost you more and take you longer to pay if the debts continue to accrue and compound interest.

4. Prepare for when you move out.

Chances are you aren't going to live with your parents forever, so it's a good idea to be financially prepared for when you move out and into your own place.

There are a number of fees you may be charged during the leasing/move-in process. Michael Vraa, managing attorney at HOME Line, a Minnesota tenancy advocacy organization, suggests that future tenants could expect some or all of the ones listed below, depending on where they live.

  • Last month's rent: Many landlords ask for this in addition to your first month's rent.
  • Security deposit: Some states limit the amount a landlord can ask for a deposit; some don't. If there is a limit, it's usually one or two times the monthly rent.
  • Pet deposit: An amount you pay to cover any damages that your pet may cause during the term of your lease. A 2014 survey by Apartments.com found that 80 percent of renters had to pay a pet deposit, and that half of them paid over $200 per year.
  • Key deposit: This covers you losing your key or garage door opener (if applicable) and may already be a part of your security deposit.
  • Application fee: Usually a set price per adult for a background check. This may be as high as $200 per applicant in states that don't regulate this fee.
  • Holding deposit or pre-lease deposit: Money to take the rental unit off the market while the landlord does a background check. Normally, this money will be applied to rent or a security deposit if the tenant is accepted.
  • Broker fee: Applicable if you use a broker to help you find a place. In New York City, for example, the standard broker fee is 15 percent of a year's rent.
  • Utility transfer fees: When you move, you could be charged for moving your utility accounts -- including electricity, gas, sewer, water, trash, cable or phone -- to or establishing new accounts at your new place.

In addition to these fees, the cost of monthly rent can be significant and may require for you to save in preparation for this too.

According to RadPad, 2016 college graduates could potentially spend about 36 percent of their entry-level salary on rent for a one-bedroom apartment in Atlanta, 56 percent in Boston, 51 percent in Seattle and a staggering 79 percent in San Francisco.

Bottom Line

Moving back in with your parents might be an exciting experience for some ... and a less-than-ideal situation for others. Regardless, it can be a unique opportunity to use the money you're saving on rent to put toward practical purposes that can benefit you in the future.

Of course, there's nothing wrong with using the extra cash to treat yourself or Mom and Dad every once in a while too.

About the Author: Mika Bhatia is a Staff Writer for Credit Karma. She's worked in financial services and tech, and has now found the perfect union of the two at Credit Karma. When she's not busy coming up with credit-related analogies, she's most likely supporting the Warriors, enjoying a fine cup of British tea or doing yoga (goal: completing a headstand without toppling over).

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