Financial Reasons Why You Might Want to Live with a Roommate

A benefit or a necessary evil, sometimes living with roommates is just what it is: a need of the hour.

While the immediate benefits of having a roommate, such as saving on rent or gaining a friend, are apparent, there’s often more to the story. Let’s take a deeper look.

In a recent poll conducted among our Diggz users, we asked why they felt the need to have a roommate, and the responses revealed a common theme: the pursuit of loftier financial objectives. While 49% of participants believed they were at the stage where it is common to live with a roommate, the remaining 51% shared a common purpose — saving for a home, conquering debt, or managing rising expenses.

1. Homeownership Dreams

A house with a wrap-around porch, or an apartment overlooking the city skyline — homeownership is your standard American Dream. But with the rising home costs, historically high interest rates, and stagnant incomes, it’s becoming quite the nightmare. Approximately 28% of participants cited the primary reason for having a roommate was to save up for substantial life goals.

One prominent aspiration among those currently living with roommates is the dream of homeownership. With soaring median home prices across most states, aspiring homeowners face a formidable financial challenge. The median home price has skyrocketed by over 100% in numerous states, while household incomes have seen a comparatively modest average increase of about 20% since the 1960s.

Economists often use the price-to-income ratio as a valuable metric to assess affordability. It’s a measure of how accessible housing is relative to the income of the population. Let’s take Denver as an example: Since 1960, the median household income in Denver has grown by 56%, while median home prices have surged by a staggering 239%. This stark contrast leaves Denver with a high price-to-income ratio of 5.1, indicating that housing affordability has become a significant concern.

Having a roommate frees up some of that disposable income to save towards buying a home, And if you already own a home, renting out will help you pay off your mortgage, which will lead you to achieve the American Dream much quicker!

2. Paying Off Debt

Dealing with debt, whether it’s credit card balances or those looming student loans, is a financial challenge many of us face. The golden rule in tackling debt is clear: the faster you pay it off, the less it accumulates. Like home ownership, paying off debt is another major reason why people go on living with roommates even past the young professional stage.

As of 2021, the average student loan debt for university graduates in the United States stands at a substantial $33,500. This is the amount many people have to tackle after completing their education.

On average, individuals take approximately 21 years to pay off their student loans. This extended repayment period means you end up paying a significant amount in interest over time.

Rent is a significant monthly expense for most individuals. In the United States, the average annual rent cost is roughly $16,000, depending on the location and type of housing. When you opt to share your living space with a roommate, you can effectively cut your rent in half, resulting in an annual savings of approximately $8,000.

Let’s put these figures into perspective. If you allocate the $8,000 you save annually on rent towards your student loan debt instead, you can make substantial progress in paying it off faster. This can lead to significant interest savings and a much shorter overall repayment period.

3. Growing Expenses

In a world where expenses seem to multiply faster than rabbits, many are turning to the strategic move of living with roommates to combat the financial strain. According to our recent survey, a notable 19% of respondents actively seek roommates as a practical solution to rising costs.

For expats transitioning from countries like Norway or Iceland, the financial impact may not be as pronounced. However, for those relocating from places like Mexico or India, the shift can be jarring. To navigate this change, many expats opt to share living spaces with roommates, providing a buffer while they adjust to new budgeting realities.

Similarly, individuals experiencing a recent divorce can find themselves in a financial quandary. In such situations, living with a roommate can be a smart choice, offering both financial relief and companionship during challenging times. Roommates are increasingly seen as a versatile solution to various financial and life transitions.

Conclusion

The number of people living in a shared household is higher than ever, with roughly 14.4 million Americans choosing to bunk up with non-family members. Whether it’s single moms forming mommunes or students opting for co-living instead of traditional rentals — millennials and Gen Zers are doubling up to tackle financial hurdles.

While saving on rent and enjoying the company of a friend are evident advantages of having a roommate, the financial reasons go far deeper. Our survey of Diggz users highlights the strategic choices people make to secure their financial future, tackle the challenges of high-cost urban living, and create financial stability through shared expenses. Roommates play a pivotal role in helping individuals achieve their financial goals and navigate the ever-changing financial landscape.