Money Management

Living with your parents? These moves might make it easier. 

One of the many ways that the COVID-19 pandemic, inflation woes, and economic uncertainty have impacted our lives is that more and more young people are living at home. According to a recent note from Morgan Stanley, almost half 18 to 29 year olds are living with their parents. It says we haven’t seen those highs since the Great Depression around 90 years ago.

Why young adults are living with parents

The Morgan Stanley note chimes with research from the U.S. Census Bureau and Pew Research Center. Insider reported that several factors are contributing to the living-with-parents trend. These include:

High cost of rentingA desire to save moneyGetting married later in lifeSaving money during college

Given that a large percentage of young adults living with parents say they’re doing so to save money, it may come as a surprise to learn that Morgan Stanley analysts think it’s also driving an increase in spending on luxury goods. Some of the money saved on essentials like housing and food goes toward travel and high-end goods.

As with many statistics, that’s only part of the picture. It wouldn’t be fair to say that young adults who are living with their parents are spending all their money on vacations and extravagant lifestyles. The pandemic and its economic effects have hit younger generations hard, impacting their work prospects, savings, and living situations.

Let’s not forget that the cost of living rose considerably in 2022, with November costs about 7% higher than they were a year before. Latest data from the Bureau of Labor statistics shows that price hikes are slowing, but housing costs in November were still 7% higher than in 2021 and food at home costs were up 12% over the year before.

Living with your parents? Here’s how to make it work

It isn’t easy to live at home as a young adult, especially after you’ve moved out and gotten used to doing things your way in your own space. That said, if you’re all OK with the situation, there can be significant financial benefits. The trick is to manage things carefully, communicate well, and not fall back into old teenage habits.

1. Set clear financial goals

Clear financial goals can help both you and your folks understand why living at home is worthwhile and how long it might last. Rent, utilities, and food make up a sizable portion of most people’s expenses, so if you’re saving on those costs you can make a lot of progress toward other goals. For example, you might take this opportunity to build up an emergency fund with three to six months’ of living expenses. Put it in a separate savings account so it doesn’t get mixed up with the rest of your money.

If you don’t set goals, the temptation to use all your disposable income on vacations and online shopping could override your good intentions. It’s OK to spend some money on fun things, the trick is to also use this time to build solid financial foundations. Let’s say you want to save for the down payment on a house. How much are you trying to save? What contribution can you make each month? And how long will it take you to reach your target?

If you’re trying to pay off debt, make a debt pay-off plan. Be open with your parents about how much debt you need to pay down, how much you’re putting toward that goal each month, and how you plan to become debt free. You can even celebrate with them when you meet specific milestones.

Another goal that could make a big difference in the future might be to start investing. The incredible thing about compound interest is that the earlier you start saving, the more that money will be worth when you reach old age. There are no guarantees, but historically investments on the S&P 500 have generated average returns of over 8%.

This example illustrates the difference time can make to your investments. If you invest $5,000 in the stock market when you’re 25 and earn an 8% APY, it could be worth over $100,000 by the time you’re 65. If you invest $5,000 under the same conditions when you’re 45, it would only be worth around $25,000 when you reach 65.

2. Communicate and agree on house rules

There are lots of potential areas of friction when you move back in with your parents. You may need to agree on clear boundaries in terms of living space, eating together, and having guests. If you can have some open conversations about ground rules and expectations from the outset, you’re less likely to run into trouble further down the road.

3. Pull your weight in terms of finances and chores

If you’re working, agree on a reasonable amount you can contribute to the household finances. Perhaps you can pay a share of the food and utility bills, as well as some form of rent. Paying a small percentage of your monthly paycheck toward living costs will show you’re not taking your parents for granted. It will also prepare you to eventually move out again and stand on your own two feet.

The same goes for housework. Offer to cook on certain nights, and help with other chores such as laundry, cleaning, and grocery shopping. If you’re contributing financially and physically, it can ease any tensions with your parents and mean they’re more likely to treat you as an adult.

Bottom line

Living with your parents can jump start your finances on several fronts. Set goals and be clear about what you’re going to do with that extra cash. That way you’ll be able to spend a set amount on fun things each month while also strengthening your financial foundations.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Emma Newbery has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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It’s a move worth making sooner rather than later. 

How often do you think about life insurance? Probably not very often. But the reality is that life insurance is one of the most important purchases you might make in your lifetime. And if you don’t have life insurance, you may want to join the ranks of the 46 million people who bought some in 2021.

Last year, life insurance policy sales rose 6.1% from 2020, according to the American Council of Life Insurers. Not only did around 46 million policies get sold, but insurers paid out a record $100 billion in benefits last year. That’s an increase of nearly 11% from 2020.

If you’ve been on the fence about life insurance, or if you’ve been putting it off due to fears about its cost, then it’s important you prioritize life insurance right now. Here’s why it’s in your best interest to act sooner rather than later.

1. You want your loved ones protected

An accident or illness could strike at any time. That holds true even if you’re young, healthy, and always make a point to look both ways before crossing the street. The sooner you put a life insurance policy into place, the sooner your family is protected in the face of tragedy.

2. You want more peace of mind

Maybe you do actively worry about passing away and leaving your loved ones in the lurch, financially speaking. If you recently had a baby, for example, that might be something that’s keeping you awake at night (that, plus the sounds of a screaming infant who refuses to stay asleep).

Rather than continue to stress over it, buy life insurance. Even if you can’t afford a huge amount of it, you’re better off getting some coverage now and then upping it down the line.

That said, if you stick to a term life insurance policy and steer clear of whole life insurance, you may find you’re able to get the coverage you need without busting your budget. Whole life insurance will cover you forever and accumulate a cash value, but those are benefits you may not actually need. So it pays to shop around for term life insurance and see what premium rates you’re eligible for.

3. You want to apply sooner rather than later to keep your premium costs down

Generally speaking, the younger you are when you apply for life insurance, the lower your premiums are likely to cost. Now you might think, “Heck, what’s the real difference between getting a policy at age 30 versus 31?” But the reality is that you never know.

For each year that goes by, there’s the potential for your health to get worse or for a new medical condition to pop up. So if you’re healthy now, apply now. It could end up being a huge money-saver.

The idea of getting life insurance may seem daunting. But clearly, many people went that route last year. And the sooner you follow their lead, the better you might feel.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Should Dave Ramsey’s warning scare you away from debt consolidation? 

If you’re paying off credit cards or other consumer debt, you might be interested in whether debt consolidation could help you do it faster.

Debt consolidation is exactly what it sounds like: You consolidate or group multiple debts into one bigger new loan. Typically, you use a personal loan or a balance transfer credit card to do that. You pay off existing lenders with the personal loan proceeds or by transferring balances to a newly opened card with a special 0% interest rate for a limited time.

If you can reduce your interest rate and the number of monthly payments you make, consolidation can lower total payoff costs and simplify your life. But finance expert Dave Ramsey isn’t a fan of this approach and he actually believes it could leave you in debt for longer. Here’s why.

Ramsey has a big warning about consolidating your debt

Ramsey explained on Facebook that debt consolidation may seem advantageous on the surface, but it doesn’t really work if your goal is to become debt-free ASAP.

And he went on to detail why he thinks refinancing and combining your existing loans into a new one could be a bad idea for you over the long-term if you’re looking for the best ways to pay off your creditors.

“This sounds like a good idea until you discover the lifespan of your loans extend, meaning you’ll stay in debt longer,” Ramsey said, discussing debt consolidation.

Instead of using this method, Ramsey recommends the debt snowball instead. That’s an approach where you focus on repaying loans in order starting with paying extra on the debt with the lowest balance and working your way up to the loans you owe the most on.

Ramsey believes the debt snowball is the best way to become debt-free fast since you’re going to be motivated to keep going with making extra payments as you repay each debt you owe and see real progress by retiring the debt.

Should you listen to Ramsey’s advice?

Ramsey’s warning about this big risk of debt consolidation is worth listening to. If you make your loan payoff time longer, your loan can obviously take more time to pay off — and it can become much costlier since you pay interest for a longer period.

But rather than opting for Ramsey’s solution — which could potentially leave you paying on high-interest debts for a very long time if they have a large balance — you should instead think about how you can be smarter about debt consolidation.

The reality is, consolidating debts doesn’t have to extend your payment time. You can choose a personal loan or balance transfer with a shorter repayment timeline than the loans you currently have (as long as you can afford higher payments that would likely result). Or you can get a consolidation loan and pay extra on it to pay it off ahead of schedule.

Debt consolidation is actually a really good idea in many cases, so you should listen to the smart aspects of Ramsey’s advice about the risk of an extended payoff timeline and embrace your own solution — a consolidation loan you still pay off quickly — instead of swearing off this debt payoff method for good.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Christy Bieber has no position in any of the stocks mentioned. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.

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Economic conditions could worsen. Here’s how to gear up. 

Will a recession strike in 2023? That’s something a lot of people are worried about. And financial guru Suze Orman says there’s reason to be.

In a recent podcast episode, Orman acknowledged that a recession could hit in the near term. But if you make these moves, you can set yourself up to get through that scenario.

1. Boost your emergency fund

The scary thing about a recession is that it has the potential to fuel an increase in layoffs. But if you arm yourself with plenty of cash in the bank so you’re able to pay your bills without a paycheck, that won’t be as huge a concern.

Now as a general rule, it’s a good idea to have enough money in your savings account to cover three to six months of essential bills. But the pandemic has prompted a lot of experts to suggest going above that threshold and socking away up to a year’s worth of bills.

If you can’t do that, just do your best. Padding your savings to any degree is a helpful thing to do when there’s the possibility of an economic downturn.

2. Pay off high-interest debt

If a recession strikes in 2023, the last thing you’ll want is expensive credit card payments hanging over your head. So now’s the time to work on whittling down that debt. Apply extra money to your current balances, or look at a balance transfer that lets you move your current debts over to a new card with a 0% introductory interest rate.

3. Get a side hustle

With inflation soaring, you may not have much money left over in your paychecks to boost your savings or pay down debt. That’s why it pays to get a second job temporarily. You can use your earnings to tackle those goals so you’re in a better place financially. And also, if layoffs start happening at your main job, you might be able to ramp up on your side hustle if you’re downsized out of your role.

4. Boost your job skills

Being great at your job won’t automatically spare you from getting laid off if your employer is forced to make cuts. But might it help buy you some protection? Probably. So now’s a good time to focus on growing your job skills. And if you recently sat down with your manager for a performance review, take that feedback to heart.

5. Expand your professional network

If you find yourself out of a job next year, you might have to rely on your network of professional contacts to find work. Take the time to grow that network in the coming weeks or months so you have more people to reach out to should the need arise.

The idea of a recession can be very scary — there’s no doubt about it. But if you make these key moves now, you might lose a lot less sleep over the idea of the economy taking a tumble and driving unemployment levels upward.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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