Ask a Trainer: Should I Live at Home or Move Out After Graduating?
Graduating from college is a significant milestone in one's life, marking the end of an era and the beginning of a new chapter. It's a time of mixed emotions, with feelings of excitement, accomplishment, and uncertainty all intertwined. For a 20-something who has just graduated from college, the experience can be particularly nerve-wracking and exciting. After spending two to four years (maybe more) in a structured environment, suddenly finding oneself in the "real world" can cause one to question how they will handle what’s next.
In this post, I want to explore two college graduates both earning the same salary at their new post-college job, but living different financial lives.
The college graduate who is able to stay home
For those of us who have a job right after graduating college, we have a choice to make: do we leave home to room with friends or live on our own? Or, do we stay home, save our money, and postpone the liberty that comes with adulthood and an income?
Our graduate in this example decides to stay home. They’re earning $65,000 as a gross annual salary in Austin, Texas where there is no state income tax. They’re earning $2,088 twice a month for a total monthly income of $4,176. Since they’re living at home, they’ve agreed to give their parents $500 per month as “rent” and to help with expenses around the house. The following is the rest of their budget:
Income: $4,088 monthly
Total Spending: $1,835
Fixed Expenses:
“Rent” to parents: $500
Cell phone bill: $50
Subscriptions: $100
Car Insurance: $150
Fitness: $15
Variable Expenses:
Groceries: $150
Dining: $500
Gas for the car: $70
Personal Care: $100
Retail: $200
Total Savings: $2,253
With our graduate staying home, they can save about $2,250 monthly, that’s $27,000 in one year, and $54,000 in two years. In no time our grad will have enough for a down payment, pursue financial independence (aka retirement) at an early age by investing, or achieve any other goal they may have for themselves.
Now, let’s check on our grad who chose to leave home and move in with their friends in New York City.
The college graduate who decides to leave home
We cannot all be the grad who stays home; sometimes it just isn’t an option, but if it is, we recommend staying home for as long as possible and saving your money.
Here’s an example of a grad who could have stayed home but chose not to. They’re earning $65,000 as a gross annual salary in New York City. They’re earning $1,866 twice a month for a total monthly income of $3,732. Unlike our grad in Austin, this grad has to pay New York state tax (4.84%) and New York City tax (3.18%). They cannot afford an apartment on their own so they’re rooming with friends from college. Here’s a breakdown of their expenses:
Income: $3,732 monthly
Total Spending: $2,949
Fixed Expenses:
Rent: $1,200
Cell phone bill: $50
Subscriptions: $100
Subway: $119
Fitness: $15
Renters Insurance: $15
Variable Expenses:
Groceries: $450
Dining: $600
Personal Care: $100
Retail: $200
Taxis: $100
Total Savings: $783
With our grad moving to a popular but high-cost-of-living city, they find themselves with higher expenses than their peer. They’re still able to save! But, they’re saving a quarter of what they could be saving back home.
If they stay disciplined with their budget they could save about $9,400 in year one by saving about $780 monthly. If they keep that up, in year two they’ll have $18,800. No small feat! But we can see the advantages to staying home and keeping your expenses low when you graduate college and start a full-time job. You’ll have the opportunity to save for an emergency fund, save for travel, save for a home downpayment, and if you’re really good, put yourself on a path to retire early.
Final Thoughts
Everyone’s life circumstances are different. Sometimes we have no one to rely on but ourselves, sometimes we have others relying on us. Life is not as cut and dry as the numbers can make it seem. If you have advantages and privileges (like being able to stay home for a couple of years and save money) make sure to take advantage of them. This counts for those well beyond their 20s too. You don’t have to be a recent college grad to follow the same principles of some short-term personal sacrifice for long-term savings and benefits.
To discuss how to budget after college, speak to one of our Trainers on Demand.