A Simple Way Millions Can Save $100,000

Paul Drinkwater/NBC/NBCU Photo Bank via Getty Images

Get a roommate for a handful of years: It could add an extra zero or two to your bottom line.

Rent tends to be the biggest monthly expense for many Americans. The number of renters (11 million) who were spending at least half of their income on rent hit a record high in 2014, according to the annual State of the Nation’s Housing Report from the Joint Center for Housing Studies of Harvard University released this year. Plus, more than 21 million people now spend 30% or more of their income on rent, even though the government recommends you spend no more than 30% of your income on rent so that you have enough leftover for other necessary expenses.

Of course, many of these people who are shelling out big-time for rent already have roommates. But many don’t: The number of people in America who live alone rose from about 5% in the 1920s to 27% as of 2012, according to data from the Census Bureau.

The problem: Living alone could cost you tens of thousands of dollars down the road. Consider: A person who opts to get a roommate in a two-bedroom apartment (and split that rent 50/50), instead of to rent a one-bedroom apartment on his own would save $420.70 a month on average, according to an analysis of rents in the 50 largest U.S. cities released Tuesday by finance site SmartAsset.

Do that for five years—even if you put that money in your checking account and don’t earn a dime of interest—and you’ll end up with $25,242. Now, let’s say that at the end of that five years, you decide to invest that money. Even if you don’t add another cent to it, you’ll end up with more than $100,000 in 25 years, assuming a 6% annual rate of return.

In some cities, the returns could be even greater. A person living alone in pricey San Francisco would pay an average of $3,548 for a one-bedroom apartment. If that person opted instead to split a two-bedroom apartment (and split the rent down the middle with his new roommate), he would end up paying just $2,443 a month—thus saving more than $1,100 each month, according to SmartAsset.

Now let’s say that person opted to do this for just five years and simply leave that extra money in his checking account each month. At the end of five years, he or she would have saved more than $66,000. Should he then invest that $66,000 and leave it there for 25 years (assuming a 6% annual rate of return), he’d end up with roughly $280,000.

Of course, having a roommate—even for a short while—isn’t without its downsides, as my colleague Dan Goldstein detailed last year. But it also has perks beyond just monthly savings on rent, including help with bills, a feeling of security and even (if you’re lucky) a lifelong friendship.

The post A Simple Way Millions Can Save $100,000 appeared first on Real Estate News and Advice - realtor.com.

from DIYS http://ift.tt/2dpbOwF