When Your Kid Moves Out, You May Feel More Financially Free! Here's How To Maximize That Extra Money
Sending your kids off to college can be challenging but liberating in more ways than one: more space around the house, more time for yourself, and more money in your pocket. Whether you're partially or fully funding your kids' education, you'll end up with more money in your pocket at the end of each month (hopefully). Maybe you've decided you want to make some serious financial changes. Here's our guide to maximizing that extra income.
Examine Your Household Budget Closely
Of course, if you've been paying for everything (or almost everything) for your kid(s) for the last 18 years, no matter how frugal you may have attempted to be, your household budget will look very different now that they're gone. No more mouths to feed, clothes to buy, and other expenses to cover for your kids.
Build A New Budget
If you're not retired by the time your kids move out, it's time for you to build a new budget based on your expenses, which should hopefully be less than your old expenses! Whether you traditionally do this or use a zero-based budgeting technique, you'll need to build a new budget to assess your finances adequately.
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Build Up An Emergency Fund
If raising the kids took every last dollar you have, it's likely that you didn't have an emergency fund saved up. This is the basic principle that you should have 3 to 6 months of expenses set aside for emergencies. If you didn't have that luxury before, you can now start building your emergency fund from the savings you'll gain from having expenses associated with raising kids.
Consider Downsizing Your Home
More home equals more heating, electricity, things to put in the home, and overall maintenance and upkeep. If there's just you and your significant other and your one child has moved out of the house, then you may not need a three- or four-bedroom home and could consider selling and downsizing the home to something more appropriate for two people living alone.
Involve Your Children In Your Changing Financial Picture
Even though your kids may be away at university or college, they're still your kids and I'm sure they would appreciate being made aware of the changes you're making at home. Even if you're not downsizing immediately, making them a part of the conversation is important. Don't leave them out.
Sell Off Unnecessary Items
In conjunction with this, you'll want to involve them in the sale of unnecessary items. For example, if there's an air hockey or pool table in the basement that they're no longer going to use (and you're not going to use it), or maybe you're thinking of getting rid of the ATV that you bought to ride around with them on. Selling unnecessary items that you no longer have a use for will help you declutter and make some money back.
Discard Unused Subscriptions
Your kids may have watched Netflix, Amazon Prime, HBO, Sportsnet, and so on. With them out of the house, there's no longer a need for you to keep paying for subscriptions that you're not using! Cut out those unused subscriptions, or transfer payments to your kids if they want to keep them.
Pay Off Your High-Interest Debt
If you have any high-interest debts, it's time to start paying them down. List all of your debts from the lowest amount owed to the highest and start paying them off one by one. By paying down the lowest amount first, you can roll those small extra savings into the next largest debt, and so on, until you're all paid up!
Save For Your Retirement
If you haven't started saving for your retirement, because you've been raising children for the last 18+ years, it's time to start saving for that now. Start by opening a Roth IRA retirement account, which has the benefits of tax-free contributions and withdrawals. Most financial experts agree that you should put aside 15% of your monthly income for retirement—maybe you can use some of the newfound funds to match that number.
Invest In Your Home
Having kids is an expensive endeavor, which is why we often put things on the back burner when we have them and put all our energy into feeding, clothing, and housing our little ones. That bedroom that's needed a paint job for five years? The roof that's been looking shoddy for the last year? It's time to invest in your home. This will help when it comes time to downsize and sell the property later on in life.
Build Long-Term Financial Goals
Sometimes, having kids can make it feel like you're running around like a headless chicken, without any room to breathe, much less think about your long-term goals. Now that the kids have flown the nest, it's time to start thinking about you and your long-term financial goals. What do you want your future to look like?
Make A List Of Your Financial Goals
Do you want to save enough money to travel across Europe for a year? Are you saving for a purchase of some sort, like that camper van you and your spouse always talked about? Once you've made a list of your financial goals, start checking them off one by one!
Glenn Carstens-Peters, Unsplash
Make Investments In The Stock Market If You've Been Holding Off
If you haven't had the money to invest before now, consider taking some of those extra savings and investing in the stock market. Choosing a broad-based exchange-traded fund, or other reliable long-term investment option like bonds, could be the perfect entry into the stock market. This can be an excellent opportunity for the long-term by investing small amounts over a prolonged period.
Sell The Car You Don't Need Anymore
You may have bought a second car for your kid to use, but if they've moved out and haven't taken the car with them—you could sell the car that you don't need anymore and make some money back on your investment.
Review Your Tax Situation
While you're able to claim your kids as dependents until they turn 19, or 24, if they go off to college, if your kids are above the age of 24, your tax situation will change. Despite losing the deduction, the extra income you'll have from not having to pay for them any longer can more than make up for the loss of a deductible.
Consider Pursuing A New Career
We've all ground away at jobs we didn't like because we have to make ends meet. That's amplified when you have children, but once your kids have flown the nest, you're free to make more choices for yourself without having the pressure of providing for them completely. This could be a good time to consider a new career path that may bring in more money than you're making right now.
Instill The Values Of Financial Independence In Your Children
Of course, this is a highly situational thing, but instilling the value of financial independence in your children is something that will pay dividends in the future. Start teaching them about money young, and they'll spend less of it as an adult. Instilling values of financial independence in your children will ensure that you're able to save for your retirement effectively.
What Changes Did You Make After Your Kids Left Home?
Let us know in the comments what changes you made to your finances once your kids flew the nest. Were you all in on saving for retirement, or did you save for a big purchase? Sell your home and move into an RV and travel the country? Let us know!
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