When your children grow up and decide to move out of the family home, you may find you have some extra money and resources to invest. Your child may have just graduated high school or college and are ready to move out and join the world on their own.
With luck, they will have already been hired to a good-paying job and will be paying their own bills from now on. All of a sudden, your financial obligations for your child are no more.
What do you do now?
After your child leaves, you now have the money that was previously set aside for their needs to do with as you please. However, before you start planning a lavish vacation, you should use the money for other needs.
Things to Consider Before Spending Your Extra Money
1. Stay Realistic
Even though you may have already paid off your child’s debts, you still want to continue providing financial support for their future needs. If you’re still planning on helping out, talk to your financial advisor about the best way to do it. Having a plan will allow you to manage your finances without losing track of your goals.
2. Think About Insurance Needs
You may be over-paying for life insurance because your children no longer rely on you. If you have a policy that you’re not satisfied with, you might want to review it to make sure that it’s still affordable. You’ll need to find a financial advisor to help you maintain good coverage.
You may have planned on keeping your child on your healthcare policy until they’re 26, but you might want to consider dropping them from it once they get insurance through their employment. Doing so could save you money. An insurance institute noted that it could reduce the cost of your policy by up to 50% or more.
Keep in mind that medical providers may not be able to share information about your child’s health with you. If you’re worried about your child’s well-being, you might want to ask them if they’d like to authorize you to access services.
This is also a good time to consider long-term care insurance, as studies have shown that it could affect your retirement savings. It’s important to purchase a policy now as opposed to waiting until you’re older to do so.
3. Protect Your Legacy
You may want to update your will to reflect the changes in your child’s situation. In the old version, you may have named a guardian for your minor children. However, now that they’re adults, it’s no longer necessary. You can give the money that was previously allocated for tuition to a charitable organization.
One of your children may be named as the executor of your estate. If you haven’t already, you should consider creating a power of attorney for your finances and healthcare in case you become incapacitated. You should regularly review your insurance policies and retirement accounts to make sure that they’re still working properly.
4. Treat Yourself
A study conducted by the Center for Retirement Research at Boston College revealed that people who are empty-nesters tend to spend more on non-durable goods, such as clothes and toys. If you have a budget that allows you to spend on these items, you should start a business or travel instead. If you have a certain amount of money that you’re planning on setting aside, ask your financial advisor to help you allocate it.
5. Focus On Your Needs
After you have more resources and time, you can now prioritize your financial future. Before you start working with a financial advisor, you should talk to them about your new situation and make sure that your financial situation reflects it properly.
6. Move On With Life
When you hire a financial advisor, you should talk to them about your new goals and make sure that your plan reflects them. One of the first steps that you should take is to determine where you’d like to live. If you’re not happy with your current home now that your child is gone, you might want to think about selling it. If you stay, you might be able to free up some equity in it, and you can use the money to fund other goals, such as retirement.
Now that you have fewer people living together, you may want to consider moving to a smaller home to take advantage of the lower cost of living. Doing this can boost your savings and leave more money to spend on other expenses.