1. Create and Stick to a Spending Plan
– We recommend the 50/30/20 rule
When your child lives on their own, they will require a game plan to manage income and expenses. The first step is to be aware of where their money is coming from and where it is going each month. This helps them be grateful for the purchasing power they have and the responsibilities that come with it. It also helps them to be in control of money, rather than having money control them.
Advise them to take their monthly income and divide it into three categories:
- 50% for Needs:
Allocate up to 50% of their income to expenses they “cannot live without” such as rent/mortgage, food, basic transportation, minimum debt repayment, and putting away money for taxes if they are self-employed.
- 30% for Wants:
Allocate up to 30% for the experiences and luxuries that are nice to have. This includes eating out, traveling, purchasing brand-name clothing, technology, etc.
- 20% for Financial Goals:
Commit up to 20% for long-term goals such as saving, investing, building up a down payment for a home, and repaying debt.
Remind them to be on top of their financial obligations such as utilities, cellphone bills, and credit card statements. Have them set up autopayment features on their bank account. This will help them build up their credit score and avoid paying late charges.
For further assistance in creating a spending plan, refer to our spending plan calculator to generate a report:
2. Buy more cash cows than cash pigs
3. Keep the lines of communication open
Maintain a strong relationship with your children and assure them that you have an open-door policy should they need to reach out to you for financial help.
Remind them that to avoid having to return to the bank of mom and dad, they need to make sure they have their financial house in order. Especially when it comes to protecting their most important asset, which is the ability to earn money.
Encourage them to review the employee benefits package that they have through work. Have them inspect what they expect from their health, dental, disability, critical illness, and life insurance coverages. They need to act upon any coverage gaps that need to be addressed, as they may need to buy their own coverages.
Finally, encourage them to seek the help of a Certified Financial Planner who can guide them along their journey toward making more informed financial choices.
Thank you for your time! We hope you have a very Happy Thanksgiving!
– Financial Education Team at FLC
