You took care of your children into adulthood, most likely at no minor cost. A 2022 Brookings Institute report found the projected average outlay from birth to age 18 for a child born in 2015 to a middle-class family with two children will be $310,605.
Now that your adult children are on their own, you have your money back. Here’s what to do with it now — and going forward.
Skip a Beat Before Preparing Your New Budget
When you’re not covering your children’s expenses anymore, you potentially have thousands of dollars per year for your personal use.
But before you plan for what to do with it all by creating a budget, understand what your real cash flow is. If you’ve been supporting your kids for the past 18 or more years, you may not remember what it was like to just spend on yourself.
“Whenever you go through a life transition it takes a while to figure out what your actual spending is,” says Kris Caroll, a certified financial planner and managing director at Wealth Enhancement Group.
“In many cases you won’t know what it is for six months to a year. During that time you will reassess what you need to live off of, so avoid doing too much planning before you know what your new normal is,” he says.
When you do have an accurate sense of how much money you have after meeting your obligations you’re ready to make bigger financial decisions.
Repay Debt Assertively
If you accumulated some debt when you were financially responsible for your kids, decide how you’ll handle it.
It’s most important to delete credit card obligations, since the interest compounds and the rates tend to be high.
“You need to be really careful about how much you’re paying for that debt,” Caroll says. Since you’re not paying for your children’s expenses, you may have enough cash left over to repay it fast — and the savings can be huge.
If you still don’t have enough to cash to delete your debt quickly even with your new budget, weigh your options. Look toward your assets. “You may want to cash out investments to pay off credit card debt or use a home equity line,” Caroll says.
Another option is to open a 0% APR balance transfer credit card. For the price of the fee (typically 2% to 5% of the balance you transfer) interest will not be added during the introductory time frame.
You may have other financial obligations like cars and mortgages, so think about what you want to do with them. The faster you pay those loans off, the sooner you’ll have even more flexibility in your budget.
For example, you may want to trade in your large family SUV for a smaller, more economical model and add the savings to your augmented cash flow.
If you’re a homeowner and are still making payments on the mortgage, Caroll emphasizes taking a long-term approach.
“When the kids have just left, this is the time to downsize. It’s much better to think about this now instead of trying to do it later. The most successful downsizing happens when you’re young, when you’re in your 40s or 50s. If you wait too long you become too invested in the home, too ingrained with the old lifestyle,” he adds.
Rework Your Budget to Include Enjoyment and Retirement
After you’ve let your cash flow patterns settle in organically for at least a few months, review your budget. Since you’re no longer paying for goods and services for your children, you should have funds that you can reroute to other line items.
“The ’empty nest’ phase of life brings emotional adjustments that can be challenging, but it also comes with some silver linings,” says Andrew Latham, director of content for the website SuperMoney and a certified personal finance counselor.
“As parents realize the substantial amounts previously allocated to food, tuition, car payments and other expenses for their children are no longer necessary, it’s essential to reassess financial goals. Investing in experiences, such as travel or hobbies previously deemed too expensive, can be fulfilling,” he adds.
If you haven’t already, start thinking about the fun things you can do with your money that you may have put off.
“Now you can plan for what you want to do now and what you want to do later,” Caroll says. “If you don’t include them in your budget, the money will be absorbed. So do you want to bike around Europe? Go on adventurous safaris? These are things you probably want to do when you are young enough to enjoy them.”
You should definitely add to your retirement savings too, especially if you haven’t saved quite enough for those years when you will not be working.
“An ideal use for this ‘free’ money would be to bolster retirement savings, especially if it had been put on the back burner during the child rearing years,” Latham says.
If you’re not doing so already, max out your 401(k). The IRS allows you to contribute up to $22,500 of your pretax income in 2023. If you’re age 50 or older, you can contribute and additional $7,500.
Avoid the Costly Boomerang Effect
Even when your kids have officially launched, they could be back for certain financial needs. Prepare yourself and them as soon as you can.
This is your money, so have a talk with your kids about what you will and won’t do, says Stefanie O’Connell Rodriguez, financial expert and host of Real Simple magazine’s “Money Confidential” podcast.
“A great way for these adults to adjust is by setting hard rules, expectations and boundaries between the two parties,” O’Connell Rodriguez says.
For example, a rule you may want to establish is that your adult children should not come to you for nonessentials. They should be responsible for purchasing all of their own discretionary expenses, even if you have the money to help out. That includes paying off their credit card debt.
For example, O’Connell Rodriguez says, if your adult children on your credit card as authorized users, it’s probably time to wean them off.
“They must establish credit in their own name and no longer charge anything to the family credit card,” she says.
Regarding boundaries, remind them that they can always ask for financial assistance in a medical emergency or other crisis.
“Hopefully you’ve been talking to your kids about money for a long time before this,” Caroll says. “One of the worst things parents can do is treat finances like it’s a taboo subject. The more open conversations you have, the less chance you’ll get the boomerang kid who you’ll be providing for forever.”
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When Your Adult Children Launch: What to Do With the Money You Aren?t Spending on Them originally appeared on usnews.com