I noticed an uptick in multigenerational households forming during the pandemic. Initially, families were consolidating households to conform with cohort structuring. Interestingly, this trend hasn’t let up. In fact, many families have ended up remaining together in the years since the pandemic began, often for a variety of reasons.
As a financial advisor, I work with several grandmothers who sold or rented their home, then decided to consolidate their household with one of their children—who I also advise. One thing that I’ve observed among these families and other clients in similar situations is that, within a short time span, they’ve experienced a significant increase in savings. The arrangement has enhanced both families’ lifestyles and overall financial wellbeing.
For families contemplating consolidating households
For families contemplating consolidating households, I recommend that they keep the following considerations top of mind:
The financial foundation comes first.
You asked, “Should a family who plans to live in a multi-generational household first set up firm rules on how expense will be divided?” My answer is a resounding YES! Although dividing financial responsibilities can be a delicate topic, it mustn’t be taboo.
Calculate the entire household budget before dividing expenses.
Household expenses are far more than just a mortgage, taxes, insurance, and utilities. When creating a household budget, also make sure to include expenses such as lawn care, snow removal, housekeeping, groceries, toiletries, cleaning solutions, furnishings, and estimates for routine repairs and capital improvements.
Dividing expenses fairly is family specific.
There’s no one size fits all formula; and transparency is necessary. Dividing up your expenses fairly may not result in everyone paying an equal amount for your household need. It may be an equal percentage based upon ability, or it may be determined by assessing space utilization of the home itself rather than electing a flat rate. In the end, fair arrangements work best if families can find a way for all parties to pay less after consolidation.
Meet regularly.
I suggest convening monthly at a minimum to keep all parties accountable. Accountability alleviates consternation and contention.
Address “what if’s” up front.
What if the owner of the property passes prematurely? What if one of the contributors stops contributing? Should families create and commit to a contractual agreement? What if someone else moves in (a significant other, a pet, etc.)? These are tough questions, which is why they must be addressed up front for long-term success. Consulting a financial advisor and attorney for guidance is wise.
Use the savings wisely.
Structured wisely, multigenerational households are a huge win. By moving in together, there’s a good chance you’ll be saving more money—which gives families the opportunity to be more strategic about their financial futures. My advice: eliminate debts wherever you can. Increase contributions to your retirement plans. Check items off the list and, if money permits, cross off items from your bucket list of activities and expenditures! Travel, buy that coat you’ve been eyeing, and take advantage of the freedom your living situation is giving you to enhance your lifestyle.
Source: Michelle Griffith, Senior Wealth Advisor