One of the most obvious dislocations caused by the COVID-19 pandemic has been the mass migration of young adults back to their childhood homes. As colleges transitioned from on-campus classes to virtual learning and many early career professionals saw their jobs disappear when the economy suddenly contracted in the early days of the pandemic, young people had little choice but to move back in with mom and dad.
According to the Pew Research Center, 52% of 18- to 29-year-olds—a total of 26.6 million people—lived with their parents in 2020. According to Pew’s analysis, 2020 saw the highest percentage of young adults living at home ever recorded, surpassing even the 48% recorded at the end of the Great Depression in 1940.
While plenty of uncertainty about the pandemic and its ongoing impacts remain, many of the conditions that initially propelled so many young people homeward have dissipated. For example, the U.S. Bureau of Labor Statistics (BLS) reported that 943,000 jobs were added in July, and analysts like McKinsey & Company remain bullish on the prospects for continued economic growth, albeit with caveats about the ongoing uncertainty of the pandemic.
For the adult children who were forced to move home, now is the time to get serious about relaunching their independent lives.
Questions to Answer Before You Start Packing
Like all things in life, the care and preparation that goes into making this transition will have a significant impact on a young person’s long-term finances and the likelihood they will ever have to move back in with their parents again. The answer to when is the right time to move out is nuanced and will inevitably vary from person to person.
When is it time to move out? “The answer to this question depends on a multitude of factors, including where the young person is living and working, what their income is, what their goals and plans are, what their current levels of debt are, what savings do they have in place already and are the parents willing to provide any assistance initially or on an ongoing basis,” says Cassandra Kirby, chief operating officer and wealth advisor at Braun-Bostich & Associates in Pittsburgh.
One way to start understanding whether you are financially prepared to move out is to do an honest cash flow assessment, says Kirby. This must include the inevitable expenses any young person will need to cover, including housing, transportation, food, insurance, student loan repayments and other discretionary spending. Keep in mind just how drastically expenses can vary depending on where you live or where you want to live.
Conduct a Trial Run Before Moving
Estimating the expenses, you’ll need to be able to cover in order to move out is a helpful first step. But Nicole Strbich, director of financial planning for Buckingham Advisors in Ohio, advocates a trial run of budgeting and spending before actually moving out.
In other words, while still living at home, Strbich says that young adults should take the money they would spend on rent, utilities, food and other expenses and deposit it into a separate account. “By moving these funds out of their normal bank account, they can adjust their spending to be limited to the remaining funds,” says Strbich. “This will allow them to see if any adjustments need to be made before entering a lease or other agreement that may cause them financial strain. Once they are ready to make this move a reality, they will have accumulated a little nest egg that will help them with a security deposit or emergency funds for the future.”
Limit Your Expenses
One lesson this exercise can teach you is that limiting your expenses is a powerful tool for balancing your budget. There are numerous expenses to examine carefully, including housing. Rather than your dream apartment in the bustling downtown of a major metropolitan area, maybe consider a smaller studio in the nearby suburbs. Instead of living alone, think about how much you would save if you found compatible roommates. Eating at home more than at restaurants and eliminating streaming subscriptions you don’t use and other unnecessary expenses can also reduce the amount you’ll need to earn each month to live independently.
Build an Emergency Fund
The creation of an emergency fund is another important step in the process of living independently—and a good way to ensure you won’t have to move back in with your parents when life throws its inevitable curveballs. Ideally, this should be done before you move out and should total at least three to six months of living expenses. Emergency funds should be kept in easily accessible accounts like money market or high-yield savings accounts so that you can use the money quickly if you lose a job or face an unexpected expense.
Make a Plan With Your Parents
Then there is the question of parental support after you leave home. Navigating how (or if) your parents will help you financially should be addressed in a straightforward way before you move. And keep in mind that these decisions can have a big impact on your parents. “Parents need to remember not to ignore their own financial situation,” says Strbich. “Helping adult children can significantly decrease their own savings, investment and retirement plans.”
In some cases, parents will be in a financial situation where they can help after you’ve moved. It can also be temporary support that stops once you’re in a good financial position yourself. “Perhaps it becomes a discussion with additional goals and timeframes set, like we continue to pay 50% of your rent until you get three to six months of your needs built up in a savings account,” says Kirby. “Then you revisit the conversation in a few months and determine your progress.”
Having these types of ongoing conversations with your parents where you discuss your savings progress can also provide an important lesson to help you remain financially independent in the future. “Accountability is a lifelong lesson and will follow you throughout your career,” says Kirby.
A former editor at Los Angeles magazine, Chris Warren has had work appear in publications ranging from Institutional Investor and Forbes to National Geographic Traveler, Oxford American and Greentech Media.
Video: How to Help Your Young Adult Become Financially Independent