How Millennials Living At Home Can Find Financial Freedom

Shorter Version

Est. Reading Time: 2 Minutes

You are technically an adult now; by biological or legal standards this is a fact. Now you are facing the added responsibilities that come with adulthood. So, you decide to either continue living independently or, if you were in a college dorm, move back in with your parents. You may wonder how this is supposed to work when you have more freedom than you had as a teenager, but your parents still know all your daily whereabouts.

Most likely you eventually want to move out and move on with your life. But how do you get to the point where you can afford to do it? The reality is, you aren’t the first person to have this dilemma nor will you be the last, as there are many Millennials living at home. So, if you want to meet your goals, whether it’s housing or something else, you need to create a detailed plan now.

S.M.A.R.T. goal planning

The first order of business is for you to decide on some short and medium life goals. It would seem obvious to whip out paper and pen and create a basic list of things you want to accomplish. However, setting up your goals so that you will actually be successful takes a little more thought and work.  What you want to do is to use the S.M.A.R.T. Goals standard:

• Specific: The more specific your goal, the easier it is to understand what you need to achieve.
• Measurable: With a dollar amount to your goals, you have a built-in way of measuring your progress toward that goal and something tangible to work toward.
• Attainable: Your goals should be a challenge but not impossible.
• Relevant: Does they make sense in the overall picture of your life?
• Time-bound: Do you have a reasonable timeframe for the achievement of your goals.

You should have a what, why, and how for each goal so that you not only know exactly how to reach your goal but are also motivated to do the work required.

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Longer Version

Est. Reading Time: 3 Minutes

Figuring out costs

Once you have decided on a few goals, you need to research what steps to take to accomplish each of them. Typically, money is a popular theme within these goals. In fact, some people think from the start that they can’t possibly raise the money needed to meet their goals and give up. However, Millennials living at home have a financial advantage because you may not have housing costs and, if you do, they are likely substantially less than the market rate. Take advantage of this financial freedom by discovering and documenting what it would cost to accomplish each of your goals. For example, if one of your goals is to move out, find out what the market rate rents are in your area for the housing size and location you want.

Don’t forget associated costs such as utilities, renter’s insurance, plus the initial purchase of furniture to get a true sense of what it will cost to live independently.

Raising the money

Once you have figured out how much each of your goals is going to cost, the second part is figuring out how you are going to raise the money to achieve them. To find that number you will need to subtract your estimated cost for your goal from your current income and expenses.

For example:

• Leslie, age 23, works as a bookkeeper
  • Gross monthly income: $2,000
  • Current monthly expenses (taxes, student loan payments, cell phone, groceries, auto loan payment, clothes & eating out): -$1,200
  • Monthly surplus: $800 ($2,000 – $1,200 = $800)
• Goal: Move into her own 1 bedroom, 600 sq. foot apartment in her local area in six months.
  • 1 bedroom, 600 sq. foot apartments in Leslie’s area cost $1,000 per month and the security deposit is usually equal to one month’s rent. Landlords require first and last month’s rent and security deposit to move in (total $3,000). 
• Leslie needs $1,000 to buy furniture, put deposits down on the utilities, and purchase a six-month renters insurance policy.
• If Leslie saves the full $800 surplus each month, after five consecutive months, she will have the $4,000 she needs for the move in, furniture, utility deposit, and insurance costs. 

All good right? Not exactly. While the $800 can get Leslie moved in and settled in the apartment, it isn’t enough to cover the future rent at $1,000 a month. So besides saving enough money to meet her goal initially, Leslie has to be sure that she can maintain her goal long term.

Making choices

You only have a fixed amount of money to manage. Although it may be replenished each pay period, your money has an endpoint that is realized after you save or spend any money that remains after your living expenses and any debts are paid. The bottom line: it is important that you live within your means. If for some reason your income and expenses don’t match, then you have to either cut back on your living expenses or increase your income.

In the example of Leslie, it is not enough for her to have the money to move into the apartment she chooses, she also needs to be able to afford the monthly rent long term. Therefore Leslie could choose to:

• Get a new job with higher pay during the five months she is saving her $800 monthly surplus or get a side job to supplement the income from her current job.
• Consider where she could cut back on her expenses:
  • One way to do this could be refinancing her student loans and auto loans. Longer repayment terms would reduce her monthly payments (downside: the total amount of interest paid over the life of the loans will increase).
  • Buy her clothes at thrift and consignment stores instead of new.
  • Reduce how often she eats out and/or use restaurant coupons and discounts when possible.
  • Cancel some of her memberships and subscriptions.
• Reduce the costs of her housing goal by choosing a less expensive alternative (i.e. a studio apartment instead of a 1 bedroom or 1 bedroom in a 2 bedroom apartment with a roommate).

Actionable Steps

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