Children today are more expensive to raise than ever. That’s partly because they’re their parents’ responsibility for longer: Children are moving back home after graduation, delaying traditional life goals such as getting married, buying houses, and having their own children. Now, it seems, more children than ever need help when they do move out own their own.
Between 2000 and 2010, the cost of raising a child increased 40%, or $60,000. In 2015, the most recent year for which the data is available, the USDA showed that children born that year would cost $233,610 to raise by the time they turned 18. That doesn’t include college.
Every generation since the 1980s has lived with their parents longer or boomeranged back home more frequently than the preceding generation. Boomerang children are now at the highest level since World War II.
A 2016 Fidelity study showed that 47% of millennials have received monetary support from their parents since they’ve been on their own. That support was frequently to help with the basics, such as "cell phone bill, utilities or groceries." For 40% of millennials between the ages of 22 and 24, a recent study showed that financial assistance from mom and dad included help with rent, up to as much as $3,000 per year.
It’s great when mom and dad can help, but they must consider their own future. And grown children need to learn how to build a financial foundation without the help of their parents. Here are four ways kids can break from from their parents and help both groups come out on top.
Get a job
It may be difficult to hear, but if you don’t have a job it’s time to get one and there’s a lot of advice on how to do so.
Since the Great Recession, unemployment and underemployment have been relatively high compared to previous market recoveries, but millennials haven’t fared worse than other generations. To bolster your chances of getting a job out of college, workers with degrees in STEM (science, technology, engineering, and math) have found it easier to find jobs over the last several years. If you’re more passionate about breaking free of the bank of mom and dad than about a career that fuels your passion, such as humanities and literature, get more education and skills in STEM.
Below are some pointers to get started:
- Polish your LinkedIn profile.
- Create profiles on job boards, such as CareerBuilder.com, Monster.com, and Indeed.com.
- Your social media accounts are your personal brand, make sure they brand you well.
- Weather our parent’s best friends, a former professor, or a local MeetUp, network, network, network.
- Create a succinct, maximum 2-page resume with action words and no grammatical or spelling errors.
- Live where jobs are plentiful for your age group.
Get another job
If you have a job and still need financial support, get more than one job. Though this isn’t ideal, this isn’t uncommon. With companies such as Uber, Lyft, TaskRabbit, and Fiverr it’s never been easier to get a second or third job.
Today’s gig- economy offers a wealth of freedom and income to those willing, brave, and smart enough to embrace it. Nearly 30% of millennials are engaged in the gig economy, according to a recent CareerBuilder survey.
Or for the entrepreneurial-minded, it’s a never been easier to start an enterprise. Sometimes all that’s needed is a tablet, a website, a blog-hosting platform, and some social media accounts to start a profitable side-hustle. With a few hundred-dollar investment in recording equipment and basic editing knowledge gained from sources such as YouTube and Coursera, you can create a successful blog or podcast. All these mediums can be monetized with affiliate marketing and sponsorships to provide a stream or multiple streams of income and break you free from the bank of mom and dad.
This is just the tip of the iceberg. The internet is rife with high-paying side hustle suggestions.
Lower your standard of living, not your quality of life
People become acclimated to a standard of living and it’s hard to change. If your standard of living is being propped up by mom and dad, you’re doing a disservice to them and you.
Mom and dad have other personal and financial goals than supporting you and you’ll never know what you can be if you stay comfortable. As entrepreneur and motivational speaker Farrah Gray says, "Comfort is the enemy of success."
Even if you only cut back a little because you’re just starting your career, the goal is to become financially independent as soon as possible. This is where living below your means and having a budget helps. It can be surprising how expenses can exceed their budgets when we spend unconsciously. This is why ongoing attention to your budget and spending is so important.
Easy ways to cut back and break free of the bank of mom and dad sooner include:
- Cut back or eliminate dining out, your phone plan, and cable
- Decreasing withholdings on your Form W2
- Searching for less expensive alternatives for the things you buy, such as wine, groceries, and clothes
- Creating a calendar of less-expensive or free activities to keep your social calendar full, fun, and frugal
- Canceling non-essential subscriptions, such as magazines, Pandora, and Amazon Prime
- Budgeting based on your income
- Cutting, not canceling and not using your credit cards
Master money basics
There are a few money milestones every adult should be sure to achieve. Put these on your radar to achieve as soon as possible because the sooner you achieve them the more valuable they will be to you.
Open and start funding a checking and savings account
If you don’t have them already, open a checking and savings account. While researching banks, and checking and savings accounts, research credit unions, community banks, and online banks in addition to the larger, traditional banks. CULookUp is a great resource for researching credit unions. Independent Community Bankers of America helps for researching community banks.
A simple Google search helps research online banks if you’re comfortable having a purely online banking relationship. Online banks such as Simple, Ally, and Chime, and others are creating unique banking products and services for the modern banking client.
Set up a direct deposit from your current employer or employers to deposit your paychecks into these accounts. Be sure to deposit some of your paycheck into your savings account that you forget about as soon as it’s deposited. In time, this will not only help you break free of the bank of mom and dad, it’ll help you not live paycheck to paycheck.
Open and start funding an individual retirement account
Whether your employer offers a company-sponsored retirement plan or not, you can still save for your retirement. Open a traditional or a Roth IRA. If you’re just starting your career, it’s likely that a Roth IRA is more appropriate for you.
Contributions into a Roth IRA are made with money that has already been taxed. The benefit to you is that any earnings on the investments you purchase with this cash grow tax free, as long as your future distributions on this money are considered "qualified" by the IRS. You, also, don’t need to fear that you’re locking your money away in our Roth IRA. Contributions into your Roth IRA may be withdrawn tax and penalty-free. Therefore, if you have a valid emergency, your Roth IRA contributions may be a source of money.
Take advantage or dollar cost averaging and compounding interest
The reason it’s important to start saving and investing money from every paycheck is because the more money you don’t spend and the more money you invest, the sooner you’ll achieve financial independence.
Dollar cost averaging is buying a fixed dollar amount of an investment, such as a mutual fund in your Roth IRA, for example, on a regular basis regardless of price. Over time, the net average cost of your investment purchases decreases because more shares are purchased at lower prices and fewer shares are purchased at higher prices.
Compounding is interest or dividend payments earning interest or dividend payments on itself. The longer your money is in a savings account or an investment the larger each interest or dividend payment is as those interest or dividend payments are reinvested back into your savings account or investment.
None of this is as hard as it seems. In fact, masting money basics can be done by automating most of this in a few hours, as described here.
Consider the emotional and financial costs to mom and dad for financially supporting you
As much as the cost of raising children has grown, so too has the cost of being an adult. It’s more expensive to retire in America than ever and many parents have sacrificed retirement nest eggs to put children through college.
Older Americans are finding it harder to retain jobs if they can even retain incomes that keep up with inflation. As housing, healthcare, and prescription drugs costs rise, Social Security becomes less helpful.
As you may be struggling with student loan debt, mom and dad may be struggling with retirement insecurity. Money is the leading cause of stress in relationships. Don’t add to mom and dad’s financial stress.
These are a few ways to break free of the bank of mom and dad. Do both yourselves a favor and take action sooner rather than later. You’ll both be happier if you do.