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Every parent must eventually accept the painful moment when their child leaves the nest and lives on their own. For some, their child will move farther away than they expected. While for others, their child leaves at a younger age. Regardless, parents are surprised by how fast time flies. As a parent, your child will always be your baby, but you understand that this is a crucial process of growing up.

At the end of the day, you want what’s best for them. You want them to be able to stand on their own two feet because you know you cannot be there for them forever.

The truth is, letting go feels scary, but they are not gone forever. In your child’s heart, where you are will always be their home. Even if their new physical home is halfway around the world. As you embrace their absence, you will realize how quickly they will miss you as distance makes the heart grow fonder. They will look forward to gathering once again for family events such as Thanksgiving dinner. For parents whose children have not yet left the nest, remember to cherish the time you have with them and continue to be grateful for each other’s presence this Thanksgiving.

Given the current global uncertainties and economic turmoil, it is natural to be concerned about what that means for our children’s financial future. That is why at FLC, we want to provide a few tips on how to help your children practice sound financial management skills that will help them transition to living on their own.

As parents, encourage the following habits to help your children soar when they leave the nest:

  1. Create and stick to a spending plan
  2. Buy more cash cows than cash pigs
  3. Keep the lines of communication open

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:

Spending Plan Calculator

2. Buy more cash cows than cash pigs

Saving is the path to having choices, financial security, and freedom. The sooner your children start making their money work hard for them, the sooner they will have more choices, such as having a work-optional lifestyle. It comes down to knowing the difference between a cash cow and a cash pig when spending money.

Cash cows are investments, such as stocks and real estate assets that can increase in value and produce passive income; helping them make money while they sleep. Millennials are in the best position to take advantage of compound interest because the earlier they start, the more wealth they build up.

Cash pigs, on the other hand, depreciate once they buy them. They are products like cars and clothes and diminish the ability to buy cash cows.

We are not saying that cash pigs are bad, but we are simply saying that the goal is to have more cash cows than cash pigs. The best scenario is to one day have their cash cows pay for their cash pigs.

Encourage your children to start making their investing automatic by setting up regular monthly contributions. It can be as little as $50 a month because something is better than nothing. Over time this discipline will pay off by giving them more control over their finances and helping them reach their goals sooner.

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

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