One day I was having coffee with a friend whom has two children who had just graduated from college and were excited about the possibility of getting a job and moving out of mom and dad’s house. One of his concerns was that regardless of how he tried to talk about the subject of money, the children (boys!) weren’t really thinking about the financial implications of being independent. It wasn’t that they were ignoring the implications, but instead they just didn’t know what they didn’t know.
How Would You Advise Them?
If you were in dad’s shoes, what information would you impart to your children about what they don’t know about living on their own? Perhaps they lived in an apartment while they were a senior or junior in college. That probably involved spending money on food, internet and rent and except for gas money (and beer money!), there weren’t a lot of additional expenses. But once you get out of the college apartment or the parent’s house, then the reality strikes.
The first thing I would recommend is to determine if you can live independently on your income. To do that, one needs to set up a budget to track expected expenses. The word “budget” can be a rather negative word to people. It represents constraint, maths, and not fun at all. So, let’s call it managing the money coming in with the money going out.
This means keeping records of your income (money coming in) and expenses (money going out) so that you can get an idea of what total expenses might be. Put everything related to finances in a box for one month. Keep all your income statements (showing take-home pay) including any side-gigs that bring in some money. Also keep in that box all your bills that come to you or are paid for by credit card or checking auto-pay (don’t forget PayPal, Venmo and any other online account). Put in the box the credit card statements showing all charges. Then, add to this list an estimate of those things you don’t pay for that you will when living on your own. This might include electricity, water and gas. Parents can also assist with coming up with that list and helping to estimate.
Time to Total Everything Up
Next, take this information and list it on a piece of paper. On the left side, show all of the things that bring in income. Add them up and total them at the bottom. On the right side, list all of the things you spend money on as well as your estimates of what you might spend if you were living on your own. Total them as well. As an alternative, if you like working with a spreadsheet, Everence has a good Excel spreadsheet that lists a lot of the things you need to track. If you would rather do your documenting online, you can use any of the calculators out there such as these available at Quicken, Dave Ramsey’s site, or something like Mint that will then allow you to track actual expenses against budget.
After this exercise, you should be able to see if your monthly expenses are going to exceed your take-home pay. If so then you probably need to stay where you are and wait until your income goes up or revisit your expenses to see where you can cut back enough to have money left over at the end of the month. Likewise, if expenses are less than take-home, than you likely can move out and will have enough left over to start making decisions about what to do with the extra income (hint: spending it all isn’t the right answer!)
Hopefully, this will give you a good start on budgeting. If you are a parent, or a recent grad who is living on your own, I would like to hear from you about your experiences of what surprised you or your children financially. Triad Personal Paperwork Service, LLC. can also help you either directly or by directing you to educational opportunities that can provide additional information and support. Feel free to contact us for more information.