Doing This One Thing During Your First 3 Years At Work Can Lead To Millions

I spent the first 3 years of my work life after college living at home with my parents.

Fortunate for me, my parents live in New York City, the financial hub of the world. As someone who works in finance, New York City offered me a tremendous amount of opportunities.

Therefore, after college, I decided to stay in NY to pursue my career in finance.

All I wanted to do when I first started working full time was to retire as soon as possible from having to work full time. I was a big fan of the concept of FIRE (Financial Independence, Retire Early) even then and this was a time before I even knew the name of the movement.

Living with my folks was very logical for me after college in order to get an early start on my savings. I know early on that solely relying on earning an income wasn’t enough to get me to financial independence.

I needed a way to save my money and to invest that savings. The easiest way for me to save money is to live at home.

There Are Many Benefits To Living At Home Early In Your Career

There were many benefits to living at home for me besides not having to worry about rent payment.

I had usage of my parents’ car without having to worry about lease payments, insurance payments or parking expenses.

My folks enjoyed cooking at home and prepared breakfast for me in the morning and dinner for me at night. Not only did I save money on not having to pay for those two meals, I got home cooking instead of typically unhealthy and processed foods from eating out or from take-outs.

Heck, there were many days during my first year and a half of working when my folks prepared my lunch for me. On those days, I brought my brown paper bag with a ham sandwich and a snack. I would eat my lunch at the cafeteria.

Talk about being frugal. I saved handsomely the first three years out of work. Best of all, things were convenient for me while living at home which made transitioning to full time work easier for me.

I didn’t have to worry about utility bill payments, home or car repairs, my meals, keeping the home clean or even laundry.

My folks mainly handled all those for me which allowed me time to focus on my career and enabled me extra time to focus on side projects as well.

There were some drawbacks. Despite being home with my parents, I was still living under someone’s castle. I couldn’t just kick back and have full ownership of that space.

Outside the occasional nagging from them about joining them for dinner at the dinner table, it wasn’t really a big nuisance for me. Fortunately for me, I enjoyed and still enjoy spending time with my parents.

The other negative I experienced was the lack of privacy when compared to having your own place.

I had to be wary about how late and how much noise my friends would make if they came over to my place, especially if late at night.

Of course, privacy is also highly valued when spending time with your significant other.

Why Living At Home The First Three Years Makes Economic Sense

But even given some of the negatives with living at home, the many positives are too attractive to ignore.

I never ran any numbers about what it would mean for me when I decided to live at home for my first three years while working a full time job.

My thought at the time was simply this is the easiest and quickest way to save some bucks so that I can invest those savings.

Now that I’ve ran the numbers, I guess I was wise beyond my age.

It makes great economic sense to spend at least the first 3 years of your work life living under the roof of mom and dad.

Now I understand this might not be possible for all of you because the job opportunities for your professional field might not be abundantly available where your folks live.

But for those who can, I implore you to give it a chance.

Let’s take the average college graduate and see how big of an economic impact it is for the college graduate to spend the first 3 years living at home.

The 2019 average college graduate pay is about $51,000 per year.

According to the Bureau of Labor Statistic, a single person spends slightly over 64% of income on housing, transportation, and food.

36.5% is spent on housing.

14.8% is spent on transportation.

12.8% is spent on food.

Now imagine if you live at home and save completely on housing and a reduced amount on transportation and food.

It isn’t hard to save on transportation if you opt to use the family car over the weekend instead of leasing or owning one yourself.

It is also easy to save on food as previously mentioned by simply eating breakfast and most dinners at home.

The Magic Of Compounding At Work

Even saving 50% on the first three years of take home pay can result in large amounts when compounded over decades.

$51,000 a year nets about $41,000 a year assuming a 20% all-in income tax rate. At a 50% savings rate, the smart person living at home can save $20,400 a year.

Over the first 3 years, this person stocks away $61,200. While this is nothing to sneeze at, it is far from retirement money.

But here is where it gets really interesting. The power of compounding is the greatest financial force in the universe.

And the power of compounding can work best given a longer period of time.

Because you started your $20,400 a year savings at the age of 23 (remember, you are living at home for the first three years), that amount has over 40 years to grow before you reach a retirement age of 65 (although nowadays, social security retirement age has ticked up to beyond age 65).

Just by saving $20,400 the first three years and investing that amount into the S&P 500 index (assuming the S&P 500 continues to perform at the same rate of return at the historical 10% return), then you can hit $1 million in savings by age 54, and get to $3 million by the end of age 65.

Let that sink in for a second. $61,200 saved over the first 3 years ($20,400 per year) out of college from age 23 to age 25 can result in $3,000,000 of savings when you hit 65 without having to contribute another cent to savings.

That is how I was able to build up my retirement nest egg to over $1,000,000 before the age of 40. I started saving and investing early.

Put another way, a $1 invested with an annual 10% will turn into $45 by the end of 40 years.

Isn’t the power of compounding magical?

If You Plan To Live At Home With Your Parents For The First Few Years After College, Here Are Ways To Set Yourself Up For An Easier Time Living At Home

Discuss With Your Parents About Payment of Expenses

It is always easier on financial situations when communication happens between parties. This is the case for sharing your finances with your significant other. This also applies to having discussions with your parents in advance of you moving back home.

It is best to lay out what expenses are paid by whom.

The first discussion item should be about rent payments. Do your parents want you to pay rent to them for living in their home?

I encourage you to start the conversation about moving back in with your parents after college and walk them through the premise of why you want to do that. It is to give you a leg up on building your financial nut.

Hopefully, they would understand, be supportive of your effort, and forgo rent payments. It might also be helpful to let them know your timeline of when you plan to eventually move out of their home.

Additionally, it is good to lay out an understanding of who should pay for certain home expenses such as utilities, cable, internet services, foods and drinks. It is best to have an understanding upfront to avoid contentious conversations later down the line.

Make Sure Division Of Labor, Responsibilities, And Chores Are Well Discussed In Advance

Similar to the importance of discussing with your parents who pays for what expenses, it is also important to set expectations on the division of labor around the home.

Do your parents expect you to perform any chores or take out the trash? Do they expect you to rake the leaves in Autumn or shovel snow during Winter.

What about laundry? Or cleaning of the different rooms in the house?

Those items should be agreed upon in advance to, once again, avoid any unhappy discussions later down the line.

Agree On House Rules With Your Parents

Setting boundaries and agreeing on house rules with your parents work both ways.

I will sound like a broken record here, but it is also best to have this discussion with your parents before moving back home to live with them.

Are there certain spaces in the home that are designated as private? Can your parents freely enter into your room?

Is it okay for you to host parties in the house or to invite friends over regardless of the time?

Agreeing on house rules are especially important if your parents where empty nesters during the time when you were away in college and now have to deal with a person living with them when they had full control of their home before.

Discuss The Usage Of The Family Car With Your Parents

One of the advantages of living at home I mentioned earlier is the availability of the family car.

Instead of having to pay for your own vehicle and all the associated costs of owning a car such as insurance, inspection fee, and parking fee, you now have a car you can use for free.

It is also good practice to discuss with your parents when you can use the car and for what expenses you are responsible?

Do you have to refill gas after each usage? Are you responsible for paying a portion of insurance? These are some of the questions which should be addressed beforehand.

If you happen to move back home or are living at home when your parents decide to get a new vehicle, you can try to nudge them to a choice that you would prefer as well given you will be one of the users of the vehicle.

Don’t Be Afraid To Provide Feedback On The Food

When I lived at home with my parents, they cooked dinner 98% of the time. Rarely did we eat out or order in.

Now, when we have family gatherings at their place, we tend to either order in or eat out. It is just easier to feed the bigger family size than to actually cook at home.

If your parents are similar to mine when I was living with them in which they like to produce home cooked meals as well, then it is also good to constructively provide them feedback on what food you like and what food you don’t.

This should hopefully lead them to cook more things which fit your taste and can lead to a more enjoyable stay at your parents’ home.

Have Your Responses Ready When People Ask You Where You Live

People nowadays tend to be more accepting of newly minted college graduates living at home.

According to a TD Ameritrade 2019 survey, half of young Millennials plan to move back home after college.

82% of parents say they would welcome their children moving back home after college.

The negative sigma with moving back home with your parents, especially the immediate years after college, is fast dissipating. It is almost expected that you do move back with your parents.

Therefore, when your co-workers, friends, or other people ask you where you live, you can loudly and proudly tell them you are living with your parents.

It also helps to elaborate generally on why you are doing so without being boastful. You can add in your response that given the high cost of living nowadays, living with my parents can help give me a leg up on my savings.

My guess is, if the questioner isn’t living at home or didn’t at around your age, he will say what a good move that is and wished that was an option to him at your age.

Understand How Much You Are Saving

At the end of the day, you have to not forget why you chose to live with your parents in the first place after college.

The reason is to make it easier for you to save at a young age. With the power of compounding on your side, you will be significantly better off than your peers.

Therefore, be sure to track how much you are able to save each pay check. Don’t forget to move the money into a brokerage account in order to invest the money.

Be sure to monitor the amount on at least a monthly basis to remind yourself why you are doing this.

Hopefully, the larger and growing balance in your account will continue to encourage you to keep going with staying with your parents.

Be Grateful To Your Parents

Of course, it is easy to take the love and support of our parents for granted.

Never lose sight of the fact that your folks don’t need to provide this accommodation to you.

Once you turn 18, their obligation for you is over. Anything above and beyond is out of the kindness of their heart.

Therefore, always be grateful to your parents for their kindness. For it is their support you are able to save and get to millions in the future.

To the audience: Did you live at home the first few years after college? If yes, how helpful was it to your savings? Are there any additional advice you can offer to the readers on what worked and what didn’t work so well living at home with your parents? If you lived on your own after college, would you choose to live with your parents if you can do it all over again?

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SoM @ SportofMoney.com

Many people work hard to better their physical and mental health. What about their financial health?

I started this blog back in 2019 to help people better their financial health as well.

My financial journey began with tens of thousands in student loan debt. Over the span of 20 years, I am close to achieving financial independence.

I truly believe anyone can get to strong financial health. Hopefully, this blog can help you on your financial journey to greater wealth and financial independence.

You can read more about me here.

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