Four Steps to Make Living at Home after Graduating from College Work

Beau Kemp of Sensible Money provides four steps for young adults to live at home after graduating from college.
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by Beau Kemp, CFP

Graduation season is right around the corner, and many soon-to-be graduates are left wondering “Where do I go from here?” 

It wasn’t too long ago I was contemplating what to do in my final semester of college. I had a few opportunities that I could’ve gone down; one paid better but I would’ve had to move cities, and the other was close to where I grew up.

I was discussing the opportunities with my parents and they gave me a once-in-a-lifetime opportunity to move back home, rent-free. The main stipulation was that I had to be aggressively saving towards a goal. After crunching the numbers, I realized it was in my best interest to move back home, even though it wasn’t the “coolest” thing to say to fellow classmates. I found there to be four main steps to making the big move work.

Step 1: Define a Savings Goal and Time Frame

Every savings plan needs a goal. Coming out of college, usually, the first step is to build up an adequate emergency fund. After that, the next goal tends to vary a little bit, with some common ones being to purchase a house or wanting to be aggressive with retirement savings.

Once you have a savings goal in mind, you need to figure out how long you want to live with your parents. This will help you avoid getting “stuck” living at home.

For me, I wanted to be moved out within two years with 6 months of expenses saved as an emergency fund, as well as enough to cover a down payment on a house.

Step 2: Set up a “Rent” Account

The biggest flaw in moving back home with your parents is you can get used to having more money than you do. Everyone’s parents set this up a little differently, some will charge you nothing, and others will charge their kids rent but at a steep discount. At some point, you will have to fly out of the nest and pay market rent or an entire mortgage.

To avoid this potential flaw, I found it helpful setting up a separate savings account to pay myself rent. At the time, market rates were $1,000 for a 1 bed 1 bath apartment, so this became my monthly rent. If your parents are charging you rent at a discount, find the difference, and make that your rent payment to yourself.

Step 3: Additional Savings

If you were living on your own, you would be paying a landlord rent, as well as saving money to reach whatever goal you defined in Step 1. Put yourself in these shoes and ask, “how much can I save after my base living expenses are covered to reach my goal?”

For example, say you would be comfortable saving $500 per month. In two years, you will have $12,000 saved living on your own. Living with your parents, you will have this $12,000 saved on top of your rent payments. Using the $1,000 rent example, this brings your total savings to $36,000 at the end of two years, giving you a $24,000 “head start” to help you reach your goal you had set for yourself in step 1.

Step 4: Stay Discipline and Adjust

A plan is only good if it is executed properly. If you know you will be tempted to spend your money instead of paying yourself rent, set up recurring withdrawals or automatic deposits to your rent account to help avoid this temptation. Also, if you happen to receive a raise throughout this time at your parents, increase your “rent” to see how much you could spend and still feel comfortable.

What if I Don’t Have This Opportunity?

I get it, not everyone has the opportunity that I had coming out of school. This doesn’t mean you need to throw in the towel and give up on your goals. The overall concept is finding a way to decrease one of your main expenses you will have coming out of college. One of the best ways to do this is by finding roommates that are in a similar stage in life that have goals and aspirations. This will help you save money every month and force you to be around hardworking people. The people that you surround yourself with will shape you, so choose wisely. 

About the author: Beau Kemp, CFP

Beau Kemp, CFP is tktktk