living with parents

5 Money Moves to Make Before Moving Out on Your Own

Dan Rafter — Fri, 10 Mar 2017 10:30:40 +0000

Today, it's not uncommon for young adults to continue living with their parents well into their 30s. A report released in 2015 by the Pew Research Center said that 32.1% of adults from the ages of 18 to 34 were living in their parents' home in 2014, the most common type of living arrangement for people in this age range.

But there does come a day when it's finally time to leave the nest. And before you do that, you need to be financially healthy enough to make it on your own.

Here are five money moves you need to make before you leave your parents' home.

1. Practice Paying Bills

Paying a mortgage or rent is an important financial responsibility, but it's not the only bill that adults face when moving out on their own. There are groceries to buy, car loans to pay off, utilities to cover, and transportation fees that eat into monthly budgets.

To prepare for the rigors of paying these bills, you should practice being financially responsible before moving out of your parents' home. This might mean paying monthly rent to your parents while you continue to live in their home. You should also ask if you can contribute financially in other ways, perhaps by paying part of the monthly utility or garbage pickup bills.

By paying at least some of the bills that your parents face each month, you'll get a much more accurate taste of what it's like to live on your own.

2. Create a Budget

No one enjoys making a household budget. But a budget serves as a blueprint that tells you how much you can spend each month. Without one, it's easy to run up debts as you spend more dollars than you can afford.

Before you leave your parents' home, you need to make a budget of your own. This budget should include all the money you expect to make each month, along with a list of regular monthly expenses and bills, such as rent, utilities, transportation, phone bills, student loan payments, and car payments.

A budget should also include guidelines for costs that vary each month. This includes everything from groceries to dining out to going to the movies.

3. Create an Emergency Fund

Financial experts say that all adults should have six months' to a year's worth of daily living expenses saved in an emergency fund. You can then tap this fund if a financial crisis, such as a job loss, hits. An emergency fund can also be used to cover unexpected major expenses, such as the cost of replacing a car's transmission or a blown water heater.

Starting an emergency fund doesn't have to be painful. Simply set aside $100, $200, or more each month to slowly build that fund. Smart savers will have at least some money stashed in an emergency fund before they move out on their own.

4. Pay Off Those Debts

Moving out with loads of credit card debt? That's not the smartest financial move. It can be hard to pay off this high-interest debt when you're saddled for the first time with monthly rent or mortgage payments. (See also: 5 Ways to Pay Off High Interest Credit Card Debt)

The smart move is to set aside as much extra money as you can to pay down your credit cards before moving. That way, you can start your independent life with a clean financial slate.

5. Build a Solid Credit Score

FICO credit scores matter today. Lenders use them to determine who qualifies for auto loans, mortgages, and other loans. Most lenders today consider a FICO credit score of 740 or higher to be a top-tier score. Scores under 640 give lenders pause.

Before you head out, you should take steps to build your credit score. The best way to do this is to pay all your bills on time every month and to pay off as much of your credit card debt as possible. By making on-time payments on credit cards or auto loans, you'll steadily build your credit score. Then, when it's time to move, you'll be doing so with a healthy credit score attached to your name. This will help you whether you're looking for a place to rent or even getting a job. (See also: How to Use Credit Cards to Improve Your Credit Score)

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Frayed Relationships, Damaged Credit, and Costly Additions — What a Multi-Generational Home Might Cost You

Dan Rafter — Wed, 29 Jul 2015 13:00:14 +0000

Are your adult children moving back into your home after struggling to find well-paying jobs after earning their college degrees? Or maybe you've moved your elderly parents back into your house to help care for them as they age?

If so, you're not alone. The Pew Research Center found that a record 57 million U.S. residents in 2012 lived in multi-generational households. That number — the most recent compiled by the research center — means that in 2012, 18.1% of the U.S. population lived in a home filled by residents of two or more generations.

Living with two or more generations under one roof can prove challenging. It might also become expensive, depending on what modifications have to be done to a home to make sure that everyone — no matter what generation — can live in peace. Here's what it might cost you.

Mortgage Matters

Chris Copley, regional sales manager for the Delaware Valley, Pennsylvania, and New Jersey in the Mount Laurel, New Jersey, office of TD Bank, says that he's worked with adult parents and their children who want to buy a multi-generational home together.

Such an arrangement can work. But Copley says that buyers need an exit strategy. What happens if after six years, the adult children whose names are on the mortgage note want to move on and buy their own homes?

"You need to have that conversation about what happens five to 10 years from now before you all agree to put your names on that mortgage loan," Copley says. "There has to be an exit strategy."

If there isn't? There could be hard feelings and damaged family relationships. That's because when people on the mortgage decide to leave the arrangement, there aren't many good options available. The owners could sell their home, splitting the mortgage. But that only works well if all parties are happy with selling.

The owners could refinance their mortgage loan so that it is only in the name of one of the homeowners. But that assumes that the new sole owners could afford the monthly mortgage payment on their salaries alone. This isn't always the case.

Copley's advice: Have a plan in place so that everyone knows what happens if one person wants to ditch the home.

Damaged Credit?

Some multi-generational households only list one generation's names on the mortgage loan. Parents who buy a home with their college-graduate children might only put their own names on the loan and then accept money each month from their children to help cover the costs of the monthly mortgage payment and other housing expenses.

Copley says that this arrangement can work if one generation's income is high enough for them to qualify for the mortgage loan on their own. But credit problems can result once one generation moves out of the home.

What if your name is on the mortgage and you're only able to make your payment each month because the members of the second generation in your home are covering half of your mortgage? What happens when the members of the generation move out and you can no longer afford the mortgage payment on your own?

Copley recommends that multi-generational households not overspend on a mortgage loan. It's best to make sure that the home you buy — and the mortgage payment that comes with it — is affordable enough so that the members of just one of the generations can make the payment each month if necessary.

It Might Not Be Cheap

You might decide it is time to move your elderly parents into your home to help care for them. This can be a way to strengthen the bond between you and your parents. But it can also be expensive. You might need to turn main-floor home offices into bedrooms, installing new walls and doorways as you do so.

You might also need to install grip-bars in bathrooms and widen hallways to make enough room for wheelchairs. To make sure that everyone is comfortable you might even need to build a new bathroom. You may be living with your elderly parents for 10 years, 20 years or more — you can't have your parents living like house guests arriving for a three-day stay.

Maybe you've decided to buy a new home to make room for yourself and your elderly parents or your adult children. This can prove costly, too. You'll need enough bedrooms to provide enough living space for everyone. And housing prices can jump substantially when you add a greater number of bedrooms to the mix. Zillow found that in 2015, the average price for a three-bedroom home in the United States stood at $173,300. That figure jumped to $291,300 for a four-bedroom home.

This doesn't mean that living in a multi-generational home can't work. It just means that families need to discuss financial matters honestly before making a move, and that they need to find a living space that provides enough room and privacy for all of the generations living under one roof.

How do you make your multi-generational home affordable?

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What to Do If Your Adult Child Is Moving Home

Kelly Kehoe — Fri, 31 Aug 2012 09:48:42 +0000

According to a recent Reuters article on adults moving back in with their parents, the U.S. Census Bureau reported the number of adult children (those over 18 years of age) living with their parents increased to 15.8 million total between the years of 2007 and 2010. Perhaps more alarmingly, the majority age group that accounted for these numbers was the 25- to 34-year-olds.

Given the rough economy since the bank industry’s meltdown in 2008, these numbers shouldn’t bee too surprising, but they pose an interesting dilemma — how much support are these parents obligated to give their children? While many parents fund their children’s college expenses and health insurance until they age out of the policy — even when the kids are no longer at home — this article examines what other financial aspects that parents of adult children living at home must take into consideration when presented with these unique living circumstances. (See also: Re-Nesting: Tips for Moving Back in With Your Parents)

Set Basic Guidelines

First things first — draw up a contract and set some basic guidelines for what is expected of your child if they are moving back or currently living at home. Detail exactly what chores you’d like them to do, what their curfew is (if any), what expenses are covered by you and what expenses are to be covered by the child. Let them ask questions so both parties are perfectly clear on what’s expected of each, minimizing the hassle of living together beyond the usual birth through 18 years.

The Issue of Rent

Should the child pay monthly rent and utilities or not? This decision is ultimately a personal one on the parents’ part; some people will want to wean their child off their wallets as quickly as possible, and others would rather the child save up money so they can move out sooner. Some families agree to let the adult child live rent free if they’re in college or saving for a down payment on a house. If they have a job and could be comfortably living in an apartment, however, it may be wise to charge rent (otherwise, they’re likely just there to mooch). For most parents, an adult child going through rough financial times shouldn’t be penalized as long as they’re earnestly looking for work, but again, it comes down to a matter of personal decision. You as the parent probably don't want an occupied nest going into your retirement years, so while it's good to help your kids lower their cost of living, you may need to apply a little tough love if they overstay their welcome.

Food Matters

Will it be a fridge free-for-all, or should adult children cover their own meal expenses? Sometimes it’s a mixture of the two, where they’re allowed to eat dinner with the family but required to pay for their own food and meals away from the dinner table. Perhaps they can offer to cook in exchange for access to the pantry and refrigerator. The downside to open access is that they may be tempted to raid the family food storage to cut back on their own food-related expenses, so asking for a monthly contribution for grocery expenses might be in order.

Other Expenses

What about phones, insurance, transportation costs, etc.? There ought to be a balance — adult children shouldn’t be completely dependent on their parents, but if they’re struggling to find a job, they might not be able to afford all of the expenses that come from living on your own in the real world. As the parent who has already raised them for 18 years, you are not obligated to cover any expenses. However, you may decide to pick and choose which expenses to cover and which ones to let your kids handle. Generally speaking, entertainment expenses such as movies, alcohol, clubs, etc. ought to be covered by the child (just make sure they’re not spending all their money on entertainment while they could be paying you rent or saving up to move out sooner).

If paying for extra expenses on a regular basis isn't a good fit for your family's situation, consider giving practical birthday or holiday gifts, such as gas cards or offering to pay for cell phone bills for a year. This way, your child can retain most of their independence yet still cover some costs they might otherwise not be able to afford on their current paycheck.

Parental Loans

There are, of course, other ways to support your adult children other than merely letting them crash at home rent-free. For starters, loans can be a great way to help your kids get back on their feet without the risk of ruining their credit or depleting their financial resources with exorbitant interest rates. Going this route would definitely demand a contractual agreement to protect yourself in the case where they may not feel obligated to pay off the loan within a reasonable timeframe because you're likely not as strict or demanding as a credit card or lending company. Be sure to include: the date of loan, the amount loaned out, interest rate (if any), payment schedule, expected date of full payment, and of course, signatures from both parties.

What about you? If you are an adult living with your parents or have you adult children living with you, how does your family approach this situation? Let us know in the comments below.

This article is from Kelly Kehoe of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: