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Plan Well, Retire Well

Saving and investing your money
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Moving towards Financial Independence

Do you have a young adult living in your home or are you a young adult living at home? If so, join the crowd! According to recent Pew Research Center analysis of Census Bureau data, "In 2012, 36% of the nation's young adults ages 18 to 31–the so-called Millennial generation–were living in their parents' home." Multi-generational households are common today for a variety of reasons, including unemployment, increased college attendance (and student loan debt), and a delay in marriage age.

When adults from different generations are living together it can ease household tensions to talk about who is responsible for paying for what. Or, perhaps the young adult is heading off to college or to live somewhere else soon. This is also a timely time to talk about money!

Where to start?  Think about talking about how to create a spending plan. The steps to creating a spending plan include:

1. List all anticipated costs,

2. Determine all sources of anticipated income,

3. Decide together who will be responsible for paying which costs,

4. Develop a monthly spending plan,

5. Check how the spending plan is working and make revisions as needed.

To begin, make a list of all anticipated expenses. Include expenses that the parent plans to pay for as well as expenses the young adult will be responsible for paying. For example, maybe the cell phone costs are on a family plan that's paid for by the parent. Or maybe car insurance is paid for by the family. Do your best to estimate costs.

Once you have a list of expenses, talk about who will pay what. This is a good time for young adults to understand all of the expenses related to independent living including car and health insurance, car maintenance, clothing, food, and more. Now is the time to clarify expectations as well as each side to listen to each others concerns

Next, talk about income. What are the sources of income for the young adult and when will the money be available? For example, if the young adult is headed to college:

  • Will they receive financial aid?
  • Does part of their financial aid package include work study?
  • Do you expect your student to work part-time during college?
  • If working full-time are the work hours guaranteed or will they vary?

Sometimes income comes in large payments (such as financial aid) and needs to be divided up to be spent over the semester. Many people find it easier to manage this type of income flow if a savings account is used. The savings account can hold the large payment and monthly amounts can be transferred to a checking account to take care of monthly expenses. This can help avoid running out of money before the semester is over!

The next step is to build a monthly spending plan (budget). People have an easier time managing their spending when it is clear how much money is available to spend and what expenses are anticipated during a short-time period such as one month.

The University of Illinois Extension Financial Wellness program offers several budgeting tools such as an Excel budget form. Of course, to know if the spending plan is working, you need to keep track of where the money goes. This is a great habit to develop and especially useful during times of transition! To track expenses, jot down spending once a day or as money is spent – using a portable device such as a cell phone is an easy way to do this.

It may be that after a month or two, the spending plan will need to be adjusted. Perhaps you forgot an expense category, or some costs are more than anticipated. If needed, adjust the spending plan as soon as possible before too much spending has occurred. When expenses are higher than anticipated in one category, then spending in another area must be decreased or more money (income) must be found.

Money management takes practice, and will likely involve a few mistakes along the way. But step-by-step young adults will move forward to financial independence.

[Rereading this blog post I wondered if more young adults were now living on their own? According to the Pew Research Center's July 2015 report, More Millennials Living with Family Despite Improved Job Market, the percent has actually increased since 2012. The percents are hard to compare as young adults are now defined as 18-34 year old, excluding 18-24 year old people who are enrolled in college full-time. However, 26% of this group live with their parents. I know many families living this trend!  Kathy Sweedler, updated November 2015]

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