If you’ve already graduated and are still living with your parents, you’re not alone. In fact, a whopping 15% of all Millennials lived with their parents in 2016, according to the Pew Research Center. That’s up from just 12% in 2010 and a 5-point jump over comparably aged Gen Xers a decade prior.
The stats shouldn’t come as too much of a surprise. Millennials are marrying later than other generations before them, and they’re slower at forming their own households. They’re also facing crippling student loan debt (about $1.5 trillion of it), and it’s keeping their financial and long-term dreams at bay.
Still, it doesn’t mean the outlook is hopeless. It just means that if young Americans are going to overcome these hurdles and eventually strike out on their own (either by renting solo or buying a home), then consciously saving, investing and budgeting will be key.
Do you want to make your dream of moving out of your parent’s home a reality? Then consider this your guidebook.
Starting to save
Whether you’ll be buying a home or renting an apartment, you’ll need a healthy amount of savings to make it happen. Rentals come with deposits, pet fees and other expenses, while buying a home will mean a hefty down payment plus closing costs.
To kickstart your savings goals, begin by paying down your existing debts. Since you’re living at home and likely have fewer expenses, you should funnel a good chunk of your income toward paying off your student loans and any other debts while there. The quicker you can pay down these balances, the easier and faster you’ll be able to save for your goals. Taking up a side hustle, like driving for Uber or doing errands on Favor, can be a great way to make extra cash to pay off your debts.
As a nice little bonus, paying down these debts can help your credit score — which can help with both a rental application and a mortgage loan.
Here’s how to kickstart your savings:
Open a savings account
First and foremost, you’ll want an account that offers a high-interest rate, as this will earn you more on what you save. When you’re just starting out, it’s also important to choose a no-minimum-balance account such as the American Express banking and savings program. This will allow you to start saving (and earning) immediately, as well as avoid fees should your balance drop below a certain point.
Create a personal budget
Minimizing your expenditures will free up more cash to put toward savings. As a general rule, commit to never spending more than you make (this will only result in more debt), and start creating budgets for individual expenses. Apps like Mvelopes or Mint can help.
You can also utilize one of the many automatic savings apps that are out there, like Chime, Qapital, Digit and Acorns. Acorns can even help you make money on those savings by investing it in various portfolios.
Make sure you know how much you need to be saving, too, as this will help you budget your funds and determine a timeline for your goals. This savings calculator can help you pinpoint exactly how much you should save daily and monthly in order to make your move a reality.
Build up your credit
Regardless of whether you’ll be buying a house or renting an apartment, your credit will play a role in your move — as well as how much it will cost you. If you want to have your pick of properties and minimize your costs as a buyer or renter, having a prime credit score can help.
Paying off your debts will give your credit score a nice boost, but there are other ways you can improve your score as well. You can also:
- Get a credit card (if you don’t already have one), and use it for small purchases only. Commit to paying it off in full and on time every month.
- Become an authorized user on your parent’s account or someone else with an established credit history.
- Pull your credit report. Just to be safe, pull your annual credit report from Experian, TransUnion or Equifax. If there are any errors or inaccuracies, report them and have them addressed. It could mean a serious boost in score once corrected.
Once you’ve paid an account balance off, don’t close it out. Credit history is a big factor in your score, so keeping these older accounts on your record is crucial.
Saving up to rent
If you’re looking to get out of mom and dad’s faster, then renting a place is your best option. Not only are the up-front costs much smaller, but so are utilities and other associated expenses. In many apartments and rentals, water, electricity, gas and other services are even included in the rent, making it even easier to budget and save up for.
To start saving for your future rental, go ahead and research rent costs in your area. As a general rule, you don’t want your rent to cost any more than 30 percent of your monthly take-home pay. Once you’ve determined what your rent will be, add another 30 percent to that cost to account for living expenses. This will include things like:
- Renter’s insurance
- Internet service
You should also see if the rental units you’re considering will require a deposit. Many landlords ask for security deposits, first and last months’ rent, and pet deposits, if you’ll be bringing a furry friend. There are also moving costs to consider: packing materials, boxes, U-Haul rentals and the costs of a moving company if you’ll want to use one.
Use a spreadsheet to tally up all these expenses and determine 1) what your move will cost you up front and 2) what the rental will cost on a monthly basis. Aim to save up at least your up-front costs and three months of rent + expenses before leaving the nest.
Saving up to buy
If you’re planning to buy a house, you’ll need significantly more savings to make your move. Buying a house requires what’s called a down payment — almost like a deposit on the home. The total cost of a down payment varies depending on your mortgage loan, the house you’re purchasing and your credit, but you can generally expect to pay anywhere from 3 to 20 percent of the total home price. On a $200,000 home, that would mean a down payment of $6,000 to $40,000.
Though these numbers might seem jaw-dropping at first glance, they’re not completely out of reach, no matter what your paychecks might look like. You’ll just need to:
- Determine your estimated down payment. Consider speaking to a loan officer at a local bank or mortgage lender for guidance on this.
- Nail down your timeframe. When are you looking to buy? This will determine how much you’ll need to save each month to get there.
- Budget toward those savings. Once you know what you need to save on a monthly basis, you can start budgeting out your expenses to free up the extra cash.
- Automate your savings. Consider setting up automatic savings deposits (from your paychecks or checking account) or using a savings app to keep your savings goals on track.
- Bank those windfalls. Getting a Christmas bonus at work? A big tax refund? An inheritance from a loved one? Dedicate that chunk of cash — in full — for your house fund.
- Build in flexibility. Sometimes extra costs come up, or you bring in less money than you thought. Make sure you have a little cushion (both financially and time-wise) in the event something goes off course.
Keep in mind that the down payment isn’t your only cost if you’re going to buy a home. You’ll also have closing costs, which usually account for anywhere from 2 to 5 percent of the total loan balance, as well as fees for inspections, appraisals, private mortgage insurance and more. Many lenders will also ask that you have enough cash to cover at least 3 to 6 months of mortgage payments, too.
If you want to buy a home but the costs seem too daunting, there are several approaches you can take. First, if you’re willing, you can bring in a roommate to help share the costs of the house with you. This will help both up front and on a monthly basis.
You can also consider a home that’s on the smaller side, like a townhome or condo unit. These come with much smaller down payments, mortgage costs and, in many cases, monthly utility costs as well.
Finally, you can also look into low-down payment loans. VA and USDA loans require zero down payment if you’re eligible, and FHA and conventional loans require just 3-3.5% percent down. There are also down payment and closing cost assistance programs that might be able to offset the up-front costs of buying a house.
At any rate, whether you’re hoping to buy a house, condo or just opt to rent for a while, a solid savings plan is the key to getting you there. Start now, and you’ll be saying goodbye to Chateau Mom-and-Dad in no time.