Friday, May 18, 2007

There's No Shame in Moving Home

One of the major things that I notice that people deal with in our society is the whole concept of when to move out and start to assert their independence financially. The funny thing about this is that there are some seriously split opinions when it comes to this issue.

Some people feel like it is important for young people to assert themselves early by making themselves financially independent of mom and dad. I personally happen to be in this camp. I've worked since I was fourteen and since I was a freshmen in college, there has never been any extended (more than 2 weeks) period in my life that I haven't worked. And for about 90% of that time, I have worked two or more jobs concurrently. Of course, this all underlines a couple of key things about my personality. I have a good work ethic. I think that hard work is good for your self-esteem, your wallet and your soul. But on top of that, I have a sense of responsibility to myself and my family.

For me, many people who are not working are not working because they choose not to. Certainly there are circumstances where it doesn't make sense for people to work. Stay at home moms, students in college with a tough course load, or medical issues are all certainly reasonable explanations for someone not working, in my book.

I generally feel that once you are sixteen years old up until you retire or are financially secure, you should have some kind of regular income from working. Even if it is just working during the summer or school break, you should start to have some kind of income. And once you graduate High School, you are in the workforce. That means you should be working (unless you are in one of the categories I've described above).

How much is enough work? I think that is the key question when it comes right down to it. Personally, I think you need to look at the amount of money that you would generally consume if you lived on your own and aim to make at least 15% more than that. And therefore, do whatever it takes (not crime though, obviously) in order to make that much money.

For those who live at home, I don't think that there is any shame in that at all, as long as you are making that extra 15% more than you would spend living on your own. Lets do some envelope math so you can see what I mean, and why I think about it this way.

Lets assume you live on your own (but with a couple of roommates). You would spend something like the following:
600/month rent
125/month utilities
140/month groceries
300/month car
90/month car insurance
50/month misc taxes/registration/etc

For a grand total of 1305. Now, you might think that you can simply make 1305 and be all set. But the reality is that there are other unexpected expenses in life like weddings, birthdays, holidays, travel, and the like. Plus, you should want to be saving SOMETHING for the future. I know, I know. You're so young....its never going to happen. But even still, just the basic expenses require a good "buffer". That 15% gives you that. This gives you a total of 1500/month net that you need to make.

That extra 15% should be going into a savings account for emergencies, by the way.

But now, what about those that live at home? Since that was the title of this post, here's the point I'm making. Too many people live at home without accurately estimating how much they'd need in order to survive on their own. This means that they are spending way more on discretionary items than they should be.

For the example above, someone whose "real life" expenses are around 1500, might be getting away with only putting out say 600 per month by just paying for their car, cell phone, credit card, gas, and insurance. But real life is something entirely different and it is a lot more expensive. In this scenario, it might be a matter of not making enough money, or it might be a matter of spending too much of what you make. In either case though, it spells disaster; moving out will never really happen because it cannot be financed.

It is a tough reality check for parents/elders with people living at home and also for people that are living with their parents.

But for some people, living at home is a great thing. For example, if you can manage to make that 1500/month and only spend 600/month on expenses and make a nice, reasonable 5% return on your emergency fund, you can expect to tuck away over 10000 dollars per year or more. And if you get into that habit early, retirement saving will be a snap, even after a move out on your own.

So, as I say, there's no shame in moving back home. The only shame is being at home, but not doing the right things for yourself and your family while you are there.

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