So, the last of your kids has flown the coup and now the house is eerily quiet — What’s one to do with all that free time? Maybe you can finally take that trip to Bora Bora or renovate that ADU!
Before you do anything, however, be sure to reassess your budget. Kids leaving the home represents an entirely new chapter in life so it’s only appropriate to plan accordingly. For some, funds are finally freed up and it’s time for a bold, second act. For others, while not much will change in terms of lifestyle, money may still need to be re-allocated.
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Let’s take a look a look at how to make an empty nester budget when your kids move out.
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Take Inventory
First and foremost, take inventory of all your former expenses. Pull bank statements and categorize your spending habits that represent the time children were still living at home.
Take Note of Where You Can Downsize
With less people in the house, you may not need as much space or everyday necessities. This is why Andrew Latham, certified financial planner (CFP) and content director at SuperMoney.com, advised downsizing in order to “cut mortgage payments, property taxes, insurance and maintenance costs.”
With less people, you may be able to downgrade internet service plans and trim the fat on a couple video streaming platforms. No longer need to be in close proximity to grade schools? Consider moving to a cheaper area.
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According to the most recently available research from Vanguard, downsizing commonly allows individuals to shore up extra funds. In fact, roughly 60% of retirees who moved to a cheaper housing market extracted roughly $100,000 in home equity.
Additionally, once your baseline monthly expenses diminish, your emergency fund can, too. Re-tabulate how much money actually needs to be in this fund to get by for three to six months. It’s going to be a lot less!
So, the burning question: What should one do with all this freed up capital?
Re-Invest
Latham suggests reviewing spending categories and re-directing the increased savings that would have gone toward extra groceries and large utility bills toward long-term goals like catching up on retirement contributions to a 401(k) plan or IRA (especially important for those over age 50), paying down a mortgage faster or perhaps investing more heavily in the stock market.
And don’t forget about the cost of your own enjoyment. Who doesn’t want to travel and dine out now that they don’t have to shuttle kids to school every morning? Latham suggests adding line items for your own discretionary spending — which becomes more important than you think since empty nesters tend to get carried away!
“When my daughter went off to college, my husband and I cooked less, which caused us to eat out more often,” stated Annette Harris, owner at Harris Financial Coaching. “As a result, we had to adjust our grocery and dining-out budgets to keep our overall finances in check […] It’s all about being intentional and ensuring that our savings and other financial goals stay on track.”
It’s completely okay to re-invest additional funds into yourself and your newfound freedom, but stay mindful of lifestyle inflation.
Additional Considerations
But wait: What about parents footing the bill for college or assisting adult children? In this case, taking inventory and downsizing become even more important — but where your savings get reinvested differs.
Parents of collegiate kids or recent college grads may not experience the same investment in themselves — or it may just be delayed a few years. As Latham explained, the savings accrued from children no longer living at home are often entirely cancelled out by the cost of tuition, room and board, and other college-related costs. In fact, some empty nesters actually spend more on children when they are away at college than when they were under their parents’ roof.
For these parents, it’s important to understand that assisting kids financially after they have left home doesn’t stop; it merely changes shape.
As Melissa Cox, owner and CFP at Future-Focused Wealth, stated, “The truth is, budgeting for an empty nest starts long before the nest is actually empty.”
And nowhere is this more important than college tuition. In the absence of appropriate planning, parents wind up pulling from their retirement funds or taking out loans — neither of which is advisable in their later years. Setting up a 529 Plan ahead of time can eliminate some of the financial drain that has become synonymous with higher education.
For these parents, while the financial freedom of an empty nest may be delayed, the bounce-back can be just as rewarding with the proper planning and strategy.
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Sources
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SuperMoney, “Super Power Your Money — SuperMoney.”
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Vanguard, “Home is where retirement funding is.”
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Harris Financial Coaching, “Harris Financial Coaching: Your Path to Financial Freedom.”
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Future-Focused Wealth, “Home.”
This article originally appeared on GOBankingRates.com: Kids Moving Out? Time To Make an Empty Nester Budget: Here’s How
