It is more common than ever for adult children to live with their parents, with estimates of 15 to 25 percent of 20 to 34-year-olds currently living at home. Even more receive at least some financial support from their parents on a regular basis. However, having a child at home can put a huge strain on your finances, and sometimes even force you to delay retirement. If you are ready to get your child out on his or her own, go through a few steps to help your child get ready to be truly financially independent.
Educate your child about expenses
One of the first issues is many young adults don't realize what sorts of things they will need to be spending money on when they are heading up their own households. These are things that parents typically cover and are taken for granted without realizing. If you are comfortable with it, share your household expense sheet with your son or daughter to help open their eyes to where money goes. Some expenses to make sure you discuss include:
- Rent payments
- Utilities (electric, gas, water, cable, phone)
- Insurance (health, car, renters)
- Groceries and personal care items
- Dining out and entertainment
- Travel (going to weddings, visiting family, taking a vacation)
- Transportation (car payment, gas and maintenance, or public transportation)
- Debt (student loans, credit cards)
- Furnishing a home (furniture, decor, household items)
Prepare a realistic budget
Your child will not be able to move out for good until he or she has a balanced budget where the monthly expenses are less than the monthly after-tax income. Otherwise, you will most likely be getting quite a few phone calls or texts requesting money to make ends meet, or a panicked moment a year down the road when the credit card is finally maxed out. You can help prepare your child by creating a detailed and balanced budget.
This step will involve some research into what actual costs are in the area where your child plans to live and at the standard of living your child envisions maintaining. The tricky part is often the standard of living your child wants cannot be supported by his or her income. You will need to help guide your child to make the tough decisions about where to cut costs to create a balanced budget. Suggest living with a roommate to minimize rent and utility costs; choose a used car instead of a new one; or dine at home more often to minimize the cost of food and beverages from restaurants and bars.
Develop a transition plan
Even if your child has a budget ready, there's still the hurdle of going through with the move. Parents have found each of the following strategies can help the transition happen more smoothly.
- Set a date for the move to give your child a sense of urgency and responsibility.
- Share professional contacts if they may be able to help your child find a better job that will enhance their income and ability to cover expenses.
- Have your child start paying you “rent” every month. Put the money into a savings account that they can later use as the security deposit and first month’s rent on their place.
- Go apartment shopping with your child to help find a place within his or her budget. If the application is not going through due to lack of credit history, consider co-signing the lease for the first year.