Over the weekend, I made two brief mentions of using cohabitation as a method for saving money. In other words, if you invite someone to share your home with you (or share someone else’s home with them) and come to a reasonable agreement for sharing the load on the bills of the home, you can save quite a lot of money and often stretch a very difficult situation into a liveable one, at least in terms of the finances.
In response to that article, I received a small pile of emails with a wide variety of thoughts, questions, and concerns about cohabitation arrangements. Since I’ve lived in such cohabitation situations in the past and we’ve recently looked into such arrangements, I thought it would be appropriate to share some of my own key thoughts on cohabitation, how much money it really saves, and whether it’s right for you.
Thoughts on Cohabitation as a Financial Tool
1. Know exactly who you’re cohabitating with
Who is this person you’re going to be sharing your living quarters with? It’s not as big of a deal when you’re in college and sharing an apartment with five other people so you can have a place to sleep for $80 a month (not that I know from experience or anything…), but when you’re talking about monthly housing expenses that run into the thousands, you want a reliable person to cohabitate with.
2. Start looking for potential cohabitants in your family and social network
Sisters, cousins, brothers, aunts, nieces and the like all make great cohabitants – you already know each other and have things in common, so you have a much higher likelihood of success. The same is true with your social network as long as you stay closer to people you know well.
3. If you choose to advertise, be selective
If you are considering a cohabitant and have any warning signs at all that there might be problems before you enter into such an arrangement, don’t enter into such an arrangement. If you do not know the person very well, you should have a legal agreement drawn up between both parties – consult a lawyer to draft one.
4. Make the terms as clear as possible
Even if you choose not to have a contract (if you’re cohabitating with your sister, for example). Make it explicitly clear when you need to pool money for rent or for a house payment. Talk about the amounts before you even begin – don’t just say “half the house payment” because the other person might not understand how much that is. Write it down in an extremely clear fashion. Give some reminders, especially at first. You should also make it clear right off the bat what sort of situation would constitute the cohabitant having to leave.
5. Protect yourself with an emergency fund
If your cohabitant doesn’t come through on an expected payment, you’ll be the one that needs to make up the difference. The best way to protect yourself here is with an emergency fund, so for the first few months, channel the money you’re saving into an emergency fund so that you’re sure you have the cash.
6. Figure out a financial system that works
A barter system might also be a good idea. Perhaps, rather than being responsible for money, your cohabitant can be responsible for some other things – home maintenance, yard work, child care, or so on. Each of these things can save you significant money and time, which has the same effect on your bottom-line personal finances, but also takes some financial concern off of your cohabitant.
Our example For several months, my wife and I discussed a cohabitation arrangement with one of her sisters. Under that arrangement, she would have lived at our home for free while attending classes at a local university part of the time, and “paying” for her room and board with some number of hours of child care per week. This would have basically allowed us to eliminate the cost of child care from our budget.
Our biggest reason for not doing this was actually a personal one. My wife began to strongly consider a semester or a year off from her job during this period instead of having her sister live with us during that year. At the same time, her sister decided to follow a different path and attend nursing school. So, the reasons had nothing to do with the arrangement, which all of us were in favor of (as it would have saved all of us some money).
Prior to that, in my late college years and early professional years, I had several cohabitation situations in order to save money – yes, the typical college roommates. Since the quality and space of living quarters weren’t really an issue then, the big reason for doing this was to save a lot of money. At one point, I shared an apartment with four other people, driving rent down to $80 a month for me.
If you’re considering such an arrangement, good luck. It can be challenging, but the financial rewards are great.