Take the 2-minute tour ×
Personal Finance & Money Stack Exchange is a question and answer site for people who want to be financially literate. It's 100% free, no registration required.

Some background information:

I'm 23 and living at home. I have a good full time job as a web programmer that I've been at for over one year. It includes benefits and 401K (which after one year I now get to contribute to. I'm giving 5%/paycheck to the 401K).

Within the first year, I paid off all of my colleges loans in my name (my parents have the other half). I have no other debts. I have one credit card that I pay off on time every month (I purchase everything with it and never spend more than I have).

Since I live at home my bills are very minimal. I pay for half of a cellphone bill with my parents, pay for my food and gas (I travel half an hour to work, one way, every day), other smaller bills (webhosting, Netflix, etc.) and I contribute to my loans in my parents' names (which should be paid off within a year).

Right now I'm trying to save up 6 months worth of pay for my emergency fund. I'm projecting that I'll achieve that goal within a year (hopefully less).

After that I only have two other financial goals:

  • Getting a newer car (I currently have a 98 Mustang which is OK, but showing its age)
  • Moving out into my own place

My questions:

  • When do I know that I'm financially stable to move out? Should I wait until both my emergency fund is at least 6 months of pay and my loans in my parents' names is paid off (to free up money)?
  • When should I factor in the newer car investment? How much should I have set aside for the car?
  • Should I get an apartment for a couple years before looking for my own house? How much should I set aside for either investment (apartment vs house)?
  • Is there anything else I should be doing/taking advantage of with my money during this "living at home" period before I finally leave the nest?
share|improve this question
7  
Kudos to you for having your head on straight, if I had been as savvy as you years ago I wouldn't be learning all the things you already seem to know. Give your parents a big thank you for whatever they did that helped you develop a responsible, healthy relationship with your finances! –  theo Aug 13 '10 at 16:17
2  
You should save another 5% (10% if you're ambitious). 10-15% in a 401(k) for as long as you're working should leave you golden in retirement. And earlier savings are worth extra. –  fennec Aug 13 '10 at 20:17
    
@fennec well I had no idea how much to put in when I started contributing (a few months ago). I'll see if I can increase the contributions now –  Bryan Denny Aug 17 '10 at 2:59
    
@fennec actually I just looked at my 401k info packet, I can only adjust the amount semi-annually, so I'll do so the next time period –  Bryan Denny Aug 17 '10 at 3:09
2  
a newer car is not an "investment" :) –  warren Nov 7 '12 at 18:55

8 Answers 8

up vote 16 down vote accepted

One big deciding factor will be what standard of living you want to maintain once you move out. Your parents have had years to get raises, accumulate savings, and establish the standard of living you are used to.

Regardless of how much you save up now, you'll still have to be living at or below your means once you move out, that means that all the expenses you currently have covered by your parents have to come out of something you are currently spending elsewhere. If they can come out of whatever extra money you have now, then great. If not, you'll have to re-align your budget to align with your income.

In my experience, seeing my friends and I move out, this was the biggest issue. Those who settled into a new standard of living until their wages went up did fine (even the few who moved out at 18 with no savings). Those who couldn't drop the extra expenses, and wanted to continue living at their parent's standard of living either never left home, ended up moving back, or ended up massively in debt. We're only just hitting 30 now, so it didn't take long for things to settle out.

share|improve this answer
1  
This succinctly says some of what I was trying to get across. –  justkt Aug 13 '10 at 16:52
    
This should be obvious, but surprisingly I've never thought about this. Great advice, thanks. –  Jason Feb 7 at 22:35

It all depends on what your financial goals are when you are ready. You sound like you could be ready today if you wanted to be. The steps that I would take are.

  1. Do some serious living expenditure work. Figure out the actual expected costs of a place (Would you be living with roommates? This saves significant amounts.), the utilities for that place (Will you be getting a high-end internet and cable package? Do most landlords in your area cover gas and/or electric, or will you have to cover that), food costs based on your existing costs, the cost of gas from where you'd like to live in the future, and so on.
  2. Add new living expenditure costs to your existing costs - gas, clothes, your webhosting, Netflix, etc.
  3. Create a monthly draft budget. This doesn't have to be something hard and fast, just a gague of what your living expenses would be compared to your after-tax salary. Make sure there would be room for "fun" money.

    a. Consider adding a new car fund line item to this budget, and deducting that amount from your paycheck starting now so that you can save for the car.

  4. Price the kinds of things you'd need to set up a place on your own (a cost that is set off if you have roommates, especially those who have the stuff to furnish your new place) - basic furniture, kitchen costs if you cook, appliances you'd need to purchase, etc. It may be more expensive than you realize.

Based on the most realistic estimate that you can make, you'll get a good idea if you want to spend the money it takes to move out alone now or later. You'll also see the price for various levels of rentals in your area (renting a single family home, townhouse, condo, apartment, living in a rented room or basement, sharing a place with friends, etc) and know some of the costs of setting up for yourself. Since you're looking at the real estate market, you may want to do a cost comparison of renting versus buying. I've found the New York Times interactive graphic on this is excellent. If you are looking to buy, make sure to research the hidden costs of buying thoroughly before taking this step.

To answer your last question, if you have the cash you should consider upping your 401K investment (or using Roth or regular IRA). Make sure you are investing enough to get your full employer match, if your employer offers one, and then get as close as you can to government maximum contribution limits. Compound interest is a big deal when you are 23.

share|improve this answer
1  
The NYT calculator is excellent, but don't forget to take into account the flexibility of renting and the risks of home ownership. If a recession hits the area when you own a home, there's a chance you'll lose your job and the value of your home will drop at the same time (possibly leaving you stuck). It's the opposite of diversifying your assets. –  fennec Aug 13 '10 at 18:15
    
@fennec - good point; one of the hidden costs of home ownership I was suggesting the OP read up on, in fact. Also in the NYT was a series of articles by a guy passionately advocating renting (until he finally caved and bought during the last article I read). Very thought-provoking reads. –  justkt Aug 13 '10 at 18:21
    
do you have a link to that article? –  Bryan Denny Aug 13 '10 at 18:41
3  
@Bryan - here's one of David Leonhardt's renter-evangelist columns: nytimes.com/2007/04/11/realestate/11leonhardt.html. Here he finally decided to buy a house: nytimes.com/2008/05/28/business/28leonhardt.html. Here he revisits rent ratios: nytimes.com/2010/04/21/business/economy/21leonhardt.html. Note what @fennec said when reading, too. –  justkt Aug 13 '10 at 19:06
    
thanks for the links! –  Bryan Denny Aug 13 '10 at 19:28

I'll just say this. You are in much better shape financially than I was when I moved out on my own and started supporting myself, and I did fine.

The 6 month emergency fund is nice, but I'd gamble that most people that have been out on their own for a long time can't match that.

The main thing is just to keep a budget that is commensurate with your income and adjust it if you see that emergency fund start to dwindle.

Look at it this way, assuming you are wrong and you completely weren't ready for independent living, you could always go back. Nothing ventured nothing gained.

share|improve this answer

One major concern with moving out on your own is can you afford rent each month, be it an apartment or a house payment. You'll hear people say that anywhere from 25% to 40% of your monthly after-tax income should go to housing. 40% seems very high to me and quite risky. I'd go for closer to 30% of your monthly after-tax income and not any higher, but that's just my opinion.

I had a friend that moved out of his parents house about the same time that I did. He bought himself a house, and then he immediately started looking for roommates to help pay for his house. It really was a good idea, and I wish that I'd been in a position to do the same, because I'm sure that it saved him a lot of money for the first couple of years.

Apart from that, my only advise would be to get a house if you can afford it. 1) Interest rates are very low right now, and 2) if you're paying rent to someone (for an apartment or whatever) then you're just throwing your hard-earned money away.

Good luck!

share|improve this answer
1  
@Jagd - the idea that you are throwing your hard-earned money away on rent is very location-dependent. In high housing price areas of the country, your rent cost may be much less and by investing in a high yield investment you can actually end up making money on the savings. Plus there are lots of hidden costs to home ownership - HOA and condo fees (some here are higher than my current rent), home repair and maintenance costs that landlords usually take the hit on when renting, etc. –  justkt Aug 13 '10 at 16:51
    
I have to say, though, +1 on making sure that housing costs can be afforded. –  justkt Aug 13 '10 at 16:51
    
My coworker has actually done this some before. He bought the house but he had a roommate for awhile (until the roommate left) and is thinking about having another roommate. –  Bryan Denny Aug 13 '10 at 17:35
4  
-1 for "throwing away money" on rent compared to buying a home. This mischaracterization needs to die. You "throw away" a comparable amount of money when you buy housing instead of investing money in a diversified portfolio. Either way you're consuming instead of saving; you may get a better deal buying a house, but there are trade-offs in liquidity and risk. –  fennec Aug 13 '10 at 18:05
1  
@Jagd - Yes, you can sell a house, but you don't need to come up with a 20% down payment to start paying rent... a down payment that could be earning you money elsewhere. Aside from tax purposes, there's no real difference between money that you spend on rent and money that you missed from ordinary investment income. (Besides, selling a house is time-consuming and expensive. Selling a few bonds or mutual funds is quick and cheap.) –  fennec Aug 13 '10 at 19:58

I recently moved out from my parents place, after having built up sufficient funds, and gone through these questions myself. I live near Louisville, KY which has a significant effect on my income, cost of living, and cost of housing. Factor that into your decisions.

To answer your questions in order:

When do I know that I'm financially stable to move out?

When you have enough money set aside for all projected expenses for 3-6 months and an emergency fund of 4-10K, depending on how large a safety net you want or need. Note that part of the reason for the emergency fund is as a buffer for the things you won't realize you need until you move out, such as pots or chairs. It also covers things being more expensive than anticipated.

Should I wait until both my emergency fund is at least 6 months of pay and my loans in my parents' names is paid off (to free up money)?

6 months of pay is not a good measuring stick. Use months of expenses instead. In general, student loans are a small enough cost per month that you just need to factor them into your costs.

When should I factor in the newer car investment? How much should I have set aside for the car?

Do the car while you are living at home. This allows you to put more than the minimum payment down each month, and you can get ahead. That looks good on your credit, and allows refinancing later for a lower minimum payment when you move out. Finally, it gives you a "sense" of the monthly cost while you still have leeway to adjust things.

Depending on new/used status of the car, set aside around 3-5K for a down payment. That gives you a decent rate, without too much haggling trouble.

Should I get an apartment for a couple years before looking for my own house?

Not unless you want the flexibility of an apartment. In general, living at home is cheaper. If you intend to eventually buy property in the same area, an apartment is throwing money away. If you want to move every few years, an apartment can, depending on the lease, give you that.

How much should I set aside for either investment (apartment vs house)?

10-20K for a down payment, if you live around Louisville, KY. Be very choosy about the price of your house and this gives you the best of everything. The biggest mistake you can make is trying to get into a place too "early". Banks pay attention to the down payment for a good reason. It indicates commitment, care, and an ability to go the distance. In general, a mortgage is 30 years. You won't pay it off for a long time, so plan for that.

Is there anything else I should be doing/taking advantage of with my money during this "living at home" period before I finally leave the nest?

If there is something you want, now's the time to get it. You can make snap purchases on furniture/motorcycles/games and not hurt yourself. Take vacations, since there is room in the budget. If you've thought about moving to a different state for work, travel there for a weekend/week and see if you even like the place.

Look for deals on things you'll need when you move out. Utensils, towels, brooms, furniture, and so forth can be bought cheaply, and you can get quality, but it takes time to find these deals.

Pick up activities with monthly expenses. Boxing, dancing, gym memberships, hackerspaces and so forth become much more difficult to fit into the budget later. They also give you a better credit rating for a recurring expense, and allow you to get a "feel" for how things like a monthly utility bill will work.

Finally, get involved in various investments. A 401k is only the start, so look at penny stocks, indexed funds, ETFs or other things to diversify with. Check out local businesses, or start something on the side. Experiment, and have fun.

share|improve this answer
    
Couple of points. "If you intend to eventually buy property, an apartment is throwing money away." I would change this to " If you intend to eventually buy property in the same area, an apartment is throwing money away." You briefly mention the flexibility of an apartment, but keep in mind that not every 23-yr-old intends to stay in the same place for the next 20+ years. Also, penny stocks aren't usually a good investment for anyone, let alone someone just starting out. Why not low cost ETF's (as an example)? –  John Bensin Jul 25 '13 at 15:31
    
I also find the paragraphs on self-defense/CPR irrelevant in an answer to a personal finance question. While useful in life, they're mostly tangential to issues of personal finance. –  John Bensin Jul 25 '13 at 15:32
    
@JohnBensin I started rambling towards the end, as I was trying to think of larger purchases or recurring expenses that might be considered. I agree with you though, and I've edited the post. –  Spencer Rathbun Jul 25 '13 at 17:28
    
The edits look good, although I still question the wisdom of recommending penny stocks to anyone, especially a new investor. Investing in penny stocks exposes you to liquidity risk, asymmetric information risk, etc. Also remember that you only get better credit ratings for a recurring expense if a) it's on a credit card, and b) the expenses have a positive effect on your utilization, e.g. you aren't using a card until you put an expense on it, which moves you from 0% utilization (bad) to 1-20% utilization (good). –  John Bensin Jul 25 '13 at 17:31
    
@JohnBensin I have family that has done well with penny stocks, which is why I recommended it as a part of an investment strategy. It depends on personal risk assessment levels what that percentage of your total investments should be. I didn't know that there were those criteria for recurring expenses, thanks for the tip. –  Spencer Rathbun Jul 25 '13 at 19:49

It's hard to financially justify buying a house just for one person to live in. You end up being 'over-housed' (and paying for it). Would you rent a whole house for yourself?

A condo might be an option - but TO ME the maintenance fees are hard to take (and they are notorious for increasing dramatically as the building ages).

You could consider buying a house that includes 1 or 2 rental units, or sharing with a friend. You do run the risk of having bad tenants though, and you have additional maintance to deal with. Having a rental unit in my modest house has worked out very well for me (living alone), and I have been VERY fortunate with tenants.

share|improve this answer

If you are living at home as an adult, then you should be paying your fair share and contributing to the household expenses. You said your parents have loans to pay for that was part of your expenses to go to college. As an adult, you should be paying your parents back for the loans they took out on your behalf.

You are a responsible person, it sounds like. Therefore, you need to finish restoring your parent's financial position first before moving out or transfer the loans that are actually yours back to you. Your college education and financial duties are your responsibility.

Basically, if you are an adult you should move into your own place in a responsible way or stay at home while contributing to your parent's financial household status in a mutually beneficial way of shared responsibility. Remember, healthy adults take care of their lives and share in paying for the expenses required to live.

share|improve this answer

I’m going to suggest something your parents may be reluctant to say: “Grow up and get out.”

A man living in a van down by the river, making minimum wage, with $0 in savings has achieved something you have still failed to achieve: adulthood. This, I believe, is more important than a man’s income or net worth.

So please join us adults Bryan. I think you’ll enjoy it. Yes, your savings may take a hit but you will gain the respect that comes with being an adult. I think it is worth it.

share|improve this answer
3  
This comes across as condescending rather than helpful. –  Larry Wang Sep 10 '10 at 1:57
2  
For many years moving out was not a marker of adulthood. Families lived together along extended generation lines. Our society, at least in the west but even in parts of the east, is moving back in that direction it seems. Young people who live at home may do so for less honorable reasons, but the OP clearly indicated that he's taking adult control of his finances, and everyone I know would consider a 20-something with a stable job and good finances to be completely adult. –  justkt Sep 10 '10 at 12:07

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.