Many recent college grads and young adults are living at home for the most obvious reason: because they are unemployed. Financial experts warn parents against derailing their retirement plans by helping their adult kids too much, but they say their clients run the gamut from being too lenient on their kids to too strict. Here are their suggestions for how to balance the desire to help your kids get started in life with concern for your own financial well-being.
On the Job Hunt
The overarching rule parents should follow for college kids returning home is that they are not running a retirement home for people in their 20s, says Ric Runestad, owner of Runestad Financial in Fort Wayne, Indiana. If the kids graduated from college, they should be either working full time or looking for full-time work, he says.
"I see a lot of my clients letting their children who are just graduating college return to the household living absolutely free," says Joe Dadich, owner of Dadich & Associates in Troy, Michigan. "I understand the parents' compassion and wanting to be there to help them get on their feet; however, it is imperative that a plan is put in place."
At the opposite end of the spectrum, Dadich had a client with a son who lost his job. The father wouldn't let him move back in until he got his finances straightened out. "The son ended up having to move to another state to find a job, and since then a rift has formed between the father and son," says Dadich. "This could have been easily avoided if an arrangement would have been made for the son to contribute to the household."
Spell It All Out
How should parents handle the financial expectations for the living arrangement? Bill Demaree, owner of Demaree Retirement Services in Indianapolis, says parents need to establish an agreement with their kids that leaves nothing to interpretation. "You need to specify a lease with an amount for rent, a percentage of the utilities and how long the child can stay in the house," says Demaree.
In addition, Runestad says he believes it's fine for parents to allow their kids to stay at home for a period even after the kids are employed to allow them time to build their savings. However, it's important for parents to collect rent. "This focuses your child's attention on the constant need to make their rent payments. A landlord doesn't care," says Runestad, about any extenuating circumstances that might arise. "They just want their rent money."
Runestad says that when he and his brothers graduated from college and returned home, his father raised their rent by a set amount per month until they moved out. "By creating leverage, our father helped instill a sense of urgency to [our moving out]," he says. "[Living at home] was a temporary privilege and not a permanent right."
Chores and Other Bills
Dan White, a certified financial planner with Dan White and Associates in Glen Mills, Pennsylvania, says kids should at least cover their own expenses, such as their car, auto insurance, and cell phone.
Dadich tells parents to make a two-year plan that includes financial responsibilities and a chore list. He recommends a payment plan based on a percentage of their income that they can contribute for rent, their cell phone bill, student loans, and other personal expenses. Since it's a percentage based on income, the amount can rise when their income does or fall if their income declines. "I think you need to make the adult child put some skin in the game to make sure they're truly invested in their future success," he says.
Runestad agrees that allowing boomerang kids to live at home can give them breathing room to get better established in life. "However, the parents need to protect against the safety net they provide becoming a hammock for their adult children," he says.
Michele Lerner is a Motley Fool contributing writer. Try any of our Foolish newsletter services free for 30 days.
15 Important Expenses That You Forgot to Plan For
How to Handle Finances With Your Boomerang Kid
Is your water bill due quarterly? Figure out how much you need to save each month to have enough to pay for the bill when it comes, and put that amount aside each month so you'll be prepared. Do the same for any bills due regularly but not monthly.
Bills you only have to pay once a year can be even harder to remember, so be sure to note things like property taxes, auto registration fees and insurance premiums and budget for them as well.
Annual subscriptions and memberships regularly trip up people's budgets. Be sure to set aside money each month for things like:
Newspaper and magazine subscriptions.
Warehouse club memberships.
Road service membership fees.
Other expenses don't happen on a regular basis, but you can still predict the need to pay for them over the course of the year. Chief among these are repair and maintenance expenses, with the biggest ones being car-related costs (oil changes, inspections, new brakes or tires, etc.) and home costs (leaky faucets, spring-time yard work, etc.).
Some home repairs go beyond the scope of "routine" and require a significant amount of money in reserve. These can include replacing your roof, installing new windows or doing a major home renovation. You can anticipate the need for most of these repairs before you have to make them, so be sure to start budgeting for them in advance.
You also need to repair and maintain your body, so factor in medical costs like annual physicals, eye exams and dental checkups, as well as co-pays and prescriptions costs if you have any ongoing conditions.
If you plan to purchase any large items in the foreseeable future, from appliances to a new car, make sure you're putting aside enough each month to pay for them in cash. It's always best to pay for big-ticket items upfront rather than finance them (unless you can get a fantastic discount by financing and can pay the balance in full before any interest kicks in).
From birthdays to holidays, there are plenty of special occasions each year to budget for. Make sure to include:
Party hosting costs.
Dinner costs if you take someone out to celebrate.
Wedding expenses (gifts, travel, hotel stays, etc.).
Your four-legged family members also need to be part of your budget. Pet care costs to consider include:
Food and treats.
Vet bills and medications.
Boarding or pet sitting.
Do you take an annual vacation? Travel twice a year to visit family for the holidays? Set aside money each month for any travel-related costs such as airfare, hotels, meals, rental cars and souvenirs.
Whether you run a business or simply a household, there are certain expenses you may need to plan for in the business category. These can include:
Tax preparation fees and tax payments.
Dues for professional organizations.
Whether you give annually to a charity of your choice or like to have some money set aside for your friends' and family's fundraisers, make sure to allocate enough each month to cover these donations
A good budget allows for a little "free" spending money you can do with as you please. It can be $20 a month for fancy coffee at your favorite coffee shop or $100 a month to feed your favorite hobby. The amount doesn't matter so much as the fact that you're allowing yourself a little guilt-free fun to keep your budget from feeling too restrictive.
Depending on your lifestyle, your eating out and entertainment budget could be a little or a lot. Whether you prefer to have dinner out once a weekend or see a movie every few weeks, figure out how much you'd ideally like to have and then examine any budget categories you can tweak to make room for it. If you realize you need to cut back on your habits a little to save money, that's fine too-at least you're aware of it now so you can act accordingly.
Even if you're not a clothes horse, chances are there are certain items you'll need to purchase throughout the year. These can include:
Updated work clothes.
A new coat, hat and other accessories come winter.
A new bathing suit for the summer.
New shoes as yours wear out.
Back-to-school clothes for your kids.
Calculate your annual spending on all clothing and accessories and divide that amount by 12 to determine how much you should be putting aside each month.