Choosing Between a Free Ride and Independence

In this episode, Maggie answers a listener question about whether or not she should live at home for free or go out on her own.

Episode Summary

This week, Maggie answers a question from a listener about whether or not she should live at home for free or go out on her own.

Episode Notes

The question this week is from Samantha from Buffalo, NY: “Is it okay to live at home rent free while you’re just starting out working or do you think you need to get out and gain independence?”


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The theme music is called Escaping Light by Aaron Sprinkle. The podcast artwork design is by Maggie’s dear husband, Dan Rader.


00:00 Hey there. Welcome to the money circle podcast. My name is Maggie Germano and I am your host every other week. When I’m not interviewing an expert guest, I’ll be here by myself answering a question from a listener. This week I’m answering a question from Samantha from Buffalo, New York. Samantha writes: “Is it okay to live at home rent for you while you’re just starting out working or do you think you need to get out and gain independence?”

00:30 I’ll just start off by saying that the answer to this question is going to vary depending on the individual. Just like with most things, there often isn’t a one size fits all solution to money questions and many people are not lucky enough to even have the option to live at home and save money while they have a full-time job. In fact, I bet there are some people out there who rolled their eyes in frustration and or jealousy when they heard this question, so here’s my “too long, didn’t” read answer. If your parents are able and willing to have you at home without charging you rent and you’re happy, safe and content in thatcircumstance, then do it. If all parties are happy with the arrangement, no one is actually taking advantage of everyone and so there is nothing to be ashamed of. Plus it’s an amazing opportunity to get ahead financially. The most important thing to do during this arrangement is to save as much money as possible or put as much as you can towards debt. If you have a full time job with few expenses while living at home, you potentially have plenty of expendable income. Of course that’s going to depend on how much money you’re bringing in, whether or not you’re contributing to the bills in the household, even if you are living with family or if you have other bills or or responsibilities out there.

01:41 So it’s always going to vary by the individual circumstance. So kind of take my advice with a grain of salt and apply it to your circumstances and see what actually works for you. But I’m just going to go over the different things that you could be doing with that extra money if you did have plenty of expendable income. So the first thing, and this is often going to be my first piece of advice, whenever you have extra money to be working with and that’s going to be paying down your high interest debt, so this would be your credit card debt or any personal loans that you potentially have. That’s also gonna cover something like a payday loan. If you unfortunately have anything like that, those are the debts that you want to be paying down fast because the high interest rates are going to snowball and make it difficult for you to get out of that debt and to afford those monthly payments.

02:34 Those are also the debts that typically have higher fees andpenalties and things like that if you are not able to makepayments, so making sure that you’re paying that debt downwhile you’re in this circumstance of not having to pay rent andother bills. That’s going to be really important. The key here is also to make sure that you’re not racking up debt. Again, once it’s paid off, if you know that you struggle with over spending up your credit cards or give them to a trusted friend or family member to hold on to you, having credit cards can be a good way to build your credit score and have that credit history, but they are also an easy way to stay in the cycle of debt, which will ultimately hurt you and hurt your credit. So if you do achieve paying down those credit cards or those personal loans, get those credit cards out of your own hands.

03:20 Disconnect them from any online stores that you have and make sure that you’re not just continuing to build that up. Again, the next important step is to make sure that you’re building up your emergency fund so it’s easier to save for emergencies. Obviously when you don’t have a whole lot of financial responsibilities to worry about and saving for emergencies before there’s an emergency is obviously the best course of action because if you do have things like rent or mortgage to pay or you do have kids that you need to be taking care of, it’s not going to be as easy to be saving up for those emergencies when that’s already happening. So make sure that you’re saving up three to six months of your income, put that money into a high yield savings account that is not connected to your checking account. And I say that because that’ll make it so that you’re less likely to be spending your emergency fund on things that are not emergencies.

04:14 And when it comes to the high yield savings accounts, I recommend that you listen to my podcast episode from two weeks ago about maximizing your liquid savings. There’s a lot of good information there and better yet, automate that savings through direct deposit from your employer. If you don’t have direct deposit from your employer, if you don’t have the option to set up multiple accounts for that direct deposit to go into, often banks will transfer that money for you or you can use an app like digit or something like that, that will plan to move that money for you. Next is maximizing your retirement savings, so starting early is the key when it comes to retirement planning. You will hear me talk about this topic in future episodes when I have other retirement experts on, but you will always hear this one piece is starting early is the most important part of retirement time is on your side when it comes to retirement because you have time for your money to be growing.

05:12 You have time for that compound interest to be building up and you have time to just be adding more money over 30 or 40 years. So starting as soon as you’re getting into the workforce is really, really, really important. Plus, if you’re making money without a lot of expenses, you can be taking full advantage of your retirement contributions. If your employer provides a retirement plan, you should contribute at least as much as they will match you. So for example, if you’re getting a 5% match from your employer, you should be contributing at least 5% of your own money to your retirement account because then you’re getting a 100% return on your money for free from your employer. However, if you can afford it, you should contribute more than the match at this point. Like I said, if you’re living rent free, you will have more expendable income.

06:01 So increasing the contribution amount, like doing 10% if you can afford it, and of course calculating that kind of percentage so that you know how much that’s going to be coming out of your paycheck every time so that you’re aware of how much money you’ll actually have available to you once you get paid. Uh, and I will share a cool paycheck calculator tool in the show notes because that, that’s something that I have found to be really helpful in playing around with the different percentages and contributions so that you can see how much your take home pay will actually change if you’re increasing or decreasing your retirement contributions. So taking these steps will start you off on the right foot and mean that you won’t have to play catch up later. This is something that we touched on on last week’s episode where if you do end up later in your career and later in life and you haven’t really contributed enough into your retirement, you’re going to have to be contributing a lot more money.

06:56 You’re going to have to really catch up and make up for lost time. So starting early will mean that you won’t likely have to do that. So if you don’t have an employer provided retirement plan, you should open an IRA and Max it out as of 2019 you can contribute $6,000 to an IRA for the year. As I said, you should be contributing to your retirement as soon as you start working, no matter what. Even if you can’t afford to max it out or even meet that match amount from your employer, don’t delay. Take advantage of your youth and contribute whatever you can even if it’s just 1%. my next piece of advice is to pay extra towards any other debt that you have. If you have low interest debt like student loans or a car loan, it might be worth being more aggressive towards those while you’re in this low cost situation.

07:42 Of course this is going to depend on the person. Some people are not concerned about paying off their student loans quickly. If they have low interest rates, they can really view their student loans as just a simple monthly payment that will go away eventually and they don’t want to stress about it too much. And I do think that that’s a good mindset to use when you’re coming at like six figures worth of debt or you know, even more than that. Some people who have gone to law school or Grad school and private school, there can be just so much student loan debt that it can feel completely overwhelming and impossible to actually work towards. So adopting the mindset of your loans as a monthly payment, a bill that needs to get paid every month and trying not to stress too much about it is I think going to be healthier, especially if you know it’s just going to take a long time and it’s just a matter of time.

08:35 Some people might also want to rely on student loan forgiveness programs to wipe out their debt in 10 years. Everyone’s got their fingers crossed to make sure that that program still exists and that it actually is functional within that time period. And I really, really hope that that is true. And so I always do recommend to clients who have a ton of debt and who are working in the nonprofit or in the public field to, you know, apply for the student loan forgiveness program and make sure they’re making the right payments and making sure that their payments, uh, you know, apply towards that program. So I always recommend to at least take part in that so that if you know it does still exist in 10 years, that they do have the opportunity to have that, that debt forgiven. Others of course feel strongly about paying down their student loans and want to be aggressive towards them.

09:21 I was one of those people, so I was lucky enough to decide to go to a state school and I, my parents took out half of my loans in parent plus loans and I took out the other half of my loans in federal loans and so I owed about $25,000 when I graduated from college in 2009 and initially I signed up for the income based repayment plan. And so that plan was looking at my previous year’s income, which was my senior year of college where I didn’t make very much money. And so my monthly payments were actually zero for two years because my first year out of school I was fairly low, low paid as well. So I took advantage of that income based repayment plan where I didn’t have to make any monthly payments for two years. And that really saved me as I was living in DC as an intern and not making very much money and having a high cost of living.

10:16 So that was a really wonderful opportunity for me. But then once I did start paying those loans back, I wanted to make up for that lost time and I wanted it to be more aggressive and not have to owe that money. So I personally was a little bit more aggressive towards paying off my loans and I was able to pay them off in four years of paying them rather than having to wait for 10 years. So that’s why it’s so important to get clear on which side you actually are on. So if you do want to be a little bit more relaxed about it and just make the monthly payments and just go by and treat it as a normal bill and some day it will pay off. Or if you’re the kind of person who’s like, Nope, I paid my dues for college. I don’t want to owe this anymore, I want to be free of this, then that’s fine.

11:02 Either side of the coin is fine. It’s just important to know which one you identify with and so if you’re the kind of person who wants to be paying extra and being more aggressive towards your student loans, this time living at home is a good opportunity to do that. Just make sure that you have already paid off your high interest debt before focusing on this heavily, as well as making sure that you have that emergency fund built up a little bit because you don’t want something to happen and then you need cash, but you’ve been putting all of that cash towards your student loans and so you don’t have any cash set aside to help with an emergency. The next piece is to save for longterm goals. As I keep saying, living at home of cost free in a situation where you don’t feel rushed to get out and you don’t, you’re not super worried about it. You’re not unhappy there. This is a really great opportunity. Plan for the future and look ahead and save for longterm goals. So save for those long term goals per, you know, perhaps you want to buy a home once you moved out here, move out of your parents’ house. Maybe that’s why you’re living at home for now because you don’t want to go rent for years. You want to buy a house as soon as you’re, you know, out of your parents’ house. If that’s the case, you’ll need money for a down payment, closing costs, and also for furnishing your home. Once you move in. When we think about buying a house, we often just think about the down payment side of things and making sure that we can make those monthly mortgage payments. But there’s actually a lot more to it. There are those closing costs. There are the costs of actually having furniture in your house once you move in. There’s also costs to consider in, you know, fixing up a house or being the only person responsible for paying for things when they break like a hot water heater or air conditioning unit, whatever it might be. So just thinking about those bigger costs for this particular goal and saving up for that. If buying a home is not on your radar, maybe you want to go on a big trip someday or maybe you have just a completely different goal that you want to be saving up for. Just thinking longer term and taking advantage of this time so that you can be planning and saving up for these longer term goals. And I understand that these are a lot of different tips and different ways to be using your money and it can feel impossible to actually achieve them all because it’s a lot at once and it can be a lot of money at once.

13:23 That’s why it’s so important to prioritize. So you should decide what’s most important to you to achieve first and then move on to the next thing once you’ve done that. And that’s honestly the kind of advice that I give to anybody in any circumstances. You know, if you have a list of five to 10 goals that you want to achieve, at some point it can feel really overwhelming and impossible. And so prioritizing the top two or even the top three or even just one if you need to focus on one first, that’s going to be the best way to just focus your energy, try not to to be too overwhelmed and anxious about reaching all of your goals. And once you’ve achieved that first one, move on to the next one and the next one and the next one. So that’s a really important part to remember.

14:06 Like I said earlier, I think living at home rent for you can be a great opportunity to achieve your financial goals that you wouldn’t otherwise be able to reach right away when you have to pay your rent and you have to pay for, you know, your utilities and food and whatever it might be, that is a lot of money that gets eaten up by those responsibilities. So if you’re lucky enough to have the option to live at home, it’s really a great opportunity. Of course, like I said, some people don’t have that opportunity or some people have to move back home out of financial necessity or out of circumstance and that might not feel as lucky and many other people out there don’t have this option at all either because they don’t have a relationship with their parents. Maybe their parents are not around. Maybe their parents have passed away or you know, maybe their parents can’t even afford to have them there and everyone’s circumstances are different.

14:59 And it’s really important to remember that and remember, you know, if you are in this situation by choice that it is an opportunity for you and it’s not something to be ashamed of and as again, as long as everyone is okay with and capable of maintaining that circumstance, there’s nothing wrong with it. Of course, once you get to a place where you feel like you’ve met your goals and or if you’re ready to start feeling more independent and be out on your own, that is the time to start making a plan. To move out and you know, hopefully the experience of living at home and prioritizing your money towards your goals can be really good practice to continue doing that. Once you’re out of the house, once you’ve known that you can set up that automatic savings contribution or once you have already been contributing to your retirement at higher levels and you can just continue doing more and more as you get older or you know, once you’ve paid off that debt and understood how to keep that debt down and, and not get into that cycle again, those are going to be really good lessons to learn early on and then apply into your life as you get older and as you’re out on your own and you have more responsibilities.

16:10 So I’ve said this a hundred times already in this episode, but I, I personally did not take advantage of this opportunity when I was young and I think, you know, moving to DC right after graduation was the right choice for me. But I know that if I had stayed home, I would have had a lot more money to be showing for it. So if that is something you’re happy with, if you are able to get the job that you are interested in, if you are comfortable with being at home with your family, if your family is comfortable and okay with having you there, then I think it’s a great opportunity. Of course, I wouldn’t recommend giving up all of your dreams or being in a situation that doesn’t feel good to everybody in order to make this happen, but if it is something that is possible, I think that it can be great. Uh, you know, don’t feel ashamed and those out there who didn’t have this opportunity, try not to shame your friends who do have that opportunity, good luck and make sure you’re prioritizing those goals and not feeling like you’re kind of wasting that money. I think that’s the most important piece is making sure that you’re being deliberate, you’re being thoughtful, and you’re prioritizing those goals as you go. Good luck and thanks for listening.

17:19 Thanks for tuning in to the money circle podcast this week. Make sure that you rate, review and subscribe so that you never miss an episode. This also really helps just as we’re getting off the ground so that more people get the money circle podcast in front of them and in their ears. If you’d like to get more connected with money circle or with me, there are lots of ways you can do that. To join the free Facebook group, visit to stay informed of any upcoming events, subscribe to my weekly newsletter at If you’d like to join the virtual money circle membership group, visit To learn more about my financial coaching services, my speaking and workshop offerings, or just to read my blog, visit You can also follow me on Instagram and Twitter @MaggieGermano.