Preparing to Leave the Nest
It seems to have become the new normal for adult children to re-possess their old bedrooms, willingly postponing the process of gaining financial independence. Confirmation of this trend can be found everywhere. The Wall Street Journal blasts the news with its headline: “Percentage of Young Americans Living with Parents Rises to 75 Year High.” The New York Times, shouts out: “It’s Official: The Boomerang Kids Won’t Leave.” According to a MarketWatch article in late April 2017, as many as 24 million Millennials were still living in their childhood home.
Money is the Chief Reason Young People Return to the Family Home
There are many reasons that a growing number of young people find themselves living at home with their parents. Chief among them being no job, or a job but the salary is too low to cover the rent, student loans, and accumulated debt from college. College graduates prefer to live at home while they pursue graduate education. Many Millennials are postponing marriage until later in life, delaying the usual event that precipitates departure from the parental nest.
A Bankrate survey says that the majority of Millennials want to be out of their parent’s home by age 22. Interestingly, this is a little earlier than the median age most Americans identify as the appropriate time for financial independence. In fact, many parents encourage their children to stay in the nest a lot longer. They believe that by allowing their child to stay home longer, he or she will have a greater nest egg in place when they do depart.
If you have moved back home, utilize this time to build sustainable financial independence.
Here are 8 tips to help you get there.
#1 Exit Strategy
Set a timetable for leaving the nest, and put all of your creativity, thought and energy into preparing for this date. If you are unemployed or underemployed, use this time to conduct an aggressive job search. Identify opportunities for side gigs. Start looking for an apartment—how much are rentals? What about deposits? Are you going to need furniture? What else? Will you parents help you out with any of these costs? How much will you need by the exit date you have established?
#2 Rules are important
It’s still your parents’ home. When you were a kid, you had to live under your parents’ rules, but now you are older, out of college even. Do you still have to follow rules? Probably. Agree on the house rules, including division of duties and responsibilities. While this may not seem connected to financial independence, learning to respect limitations and to meet expectations will go a long way toward preparing you for financial freedom.
#3 Financial Freedom Plan
Financial freedom means being able to afford the lifestyle you desire, with manageable debt, good credit, and peace of mind. Develop a financial freedom plan, with clear goals, objectives, and deadlines.
#4 Get a reality check on the true cost of things
As you develop your monthly budget, scout out the grocery stores and see the actual prices. If you are not involved in the grocery shopping, you may be surprised to see what food actually costs. Same with cars, or housing…search around and write down the prices you see so that your budget is based on reality. Does your lifestyle include massages? Vacations? Trips to the café? Plug these costs into your budget too. Once you have all the potential expenses, deduct that amount from your expected income. Can you afford it? If not, re-prioritize and re-calculate now, while you can without penalties.
#5 Set Financial Goals
Take this time to prioritize your financial goals—first pay off your debt, start building an emergency fund, and save for rent plus all the extra expenses that come with having your own place. With all the research you did in the step above, you will have a pretty good idea of how much you need to save. Your successful transition to financial independence depends upon this step.
#6 Develop good bill paying skills
Suggest a family meeting to discuss the household bills, their due dates and amounts. Determine what will be your share. For instance, are you going to pay rent? How much? What about the household expenses, such as groceries, utilities, internet? If your parents ask you to pay rent, be sure to pay it on time. This is good training for the future. If you agree to share household expenses, pay your share without delay or complaint.
#7 Define Responsibilities for Personal Debt and Bills
How about your student loans? Are your folks going to help you out? Will they waive rent payments so you can put your income toward paying debt? And, what about your personal expenses, like your smartphone, car, car insurance, or entertainment? Will your parents help out with this, or will these expenses become your responsibility?
#8 Live within your means
Keeping your spending within the boundaries of your income is a critical component of acquiring financial freedom. Even if your parents are giving you a free ride, pretend that you are paying all your expenses: rent, telephone, internet, car, insurance, groceries, entertainment, etc. Use your budget, just as you would if you were living on your own. Rather than spending your “extra” money on frivolous things, set aside the exact amount of your budgeted expenses and put it in savings. Behave as if you don’t own the money and live on the balance after all the expenses are “paid.” This will soften the landing when you step out to enter the world of financial independence.