Living at home can put young adults on right financial path

In July, more than half of young adults between the ages of 18 and 29 were living with one or both parents, the highest percentage since the Great Depression, according to Pew Research Center. While some may fear for that generation’s financial independence, there are a lot of advantages to living rent-free with Mom and Dad.

Ideally, living at home should provide a way to improve your financial well-being and lay the groundwork for future success. A common rule of thumb for budgeting is to spend no more than 30% of your aftertax income on housing, says Michaela McDonald, a certified financial planner based in New York City.

Depending on what part of the country you live in, that can be a difficult standard to meet. But if you’re able to keep your job after you move in with your parents, you’ve freed up that money to put toward other goals, such as saving for retirement and paying off debt. And depending on whether you pay rent and other expenses to your parents, you might also save on utilities, Wi-Fi and cable. Many parents throw in three square meals for free.

All that passive saving is well and good, but it can also be unmotivating, so you should have concrete financial goals when you move back home. “Paying off debt is first and foremost in the order of operations when moving in with the family,” says Andrew Westlin, a CFP based in Annapolis,

Maryland.

Start by taking a look at any high interest-rate debt you may have, such as credit cards or personal loans. Use the money that would be going to other living expenses to pay off those loans as fast as possible. If you have student loans, make sure you’re at least making the minimum payments, Westlin says.

Don’t ignore retirement saving. If you’re working and your employer matches 401(k) contributions, make sure you’re saving enough to get the full employer match. If you don’t have a 401(k), try to put at least something away in an IRA. If you can save just $100 a month in a retirement account, that money will grow substantially over the years.

“It seems so far off, but your future self will definitely thank you,” McDonald says.

Next, start building an emergency fund. Generally, setting aside enough money to cover three to six months of expenses is a good way to establish a healthy safety net, Westlin says. That exercise can also help you set a timeline: When you’ve reached your savings goal, that might be the signal that it’s time to fly the nest.