If you have a son or daughter who is graduating from high school or college this year, congratulations! This a significant milestone in their life and in yours. This accomplishment also marks a new phase for your finances. We want to make sure your financial plan is ready for this next phase. If your grad will be attending college and you will be paying for some or all of that education, we likely need to make some adjustments to your plan.
However, if you don’t have a grad in your family yet — or if your son or daughter is just now graduating from kindergarten — that’s great, too! That means we can start early to plan for their education. Just like saving for retirement, saving for a college education is much easier when you have a long time horizon for planning and saving.
Here are some actions you might need to take if your graduate will be leaving home soon.
1. Adjust your budget
If you’ve been giving your child an allowance during high school, that is one expense you can remove from your budget. Meanwhile, you will need to add to your budget any new expenses your grad will have now that he or she is heading to college or graduate school or into the workforce.
You will need to budget for any college expenses that are not being paid for through a 529 or other college savings plan, scholarships, grants, student loans, a work-study program or another job your grad might begin. These expenses include tuition, housing, meals, books and other resources, and vehicle expenses, including insurance, that you are covering for your grad.
2. Revisit your goals
This is also a good time to revisit your goals with your financial advisor. If you are paying for most or all your grad’s new expenses, we might need to delay the funding for some of your other goals for now. Or, if you are paying for your grad’s new expenses using a 529 plan or other education savings plan, we might be able to increase your contributions toward other goals.
For example, you might want to accelerate your retirement savings, increase charitable giving, make some travel plans or help younger children and/or aging parents.
3. Update your estate- and legacy-planning documents
Having a child leave home is also a great time to update your will, health-care directive and other important estate-planning documents and the beneficiaries you designate on them. Consider if you should add your now-adult child’s name to certain documents. Discuss gifting and trusts for young adults with your advisor. Adjust any insurance policies as needed, given your child’s new circumstances.
4. Manage expectations about your grad’s financial independence
We always encourage our clients to be open and transparent about financial issues as early as possible. It is important to manage the expectations you have for your children while they are young, and then reinforce them as they get older. That way, there are no surprises when they are about to graduate from high school.
If you have not had that discussion about expectations with your grad yet, now is a great time to make it a priority! Talk with your grad about ongoing support. Explore options together to figure out how much, if any, of the college expenses your grad will be able to provide by working or, again, through scholarships, grants and student loans. Let your grad know what you can offer, and guide him or her in creating a financial road map, which includes a budget. Encourage your grad to follow it; this is an excellent habit for all of us to adopt.
If you provide your grad with a debit or credit card, or with money for an emergency fund, be clear about any expectations you have regarding spending limits and types of purchases your grad should and should not make. And then check in often! Your grad will get busy quickly, and it can be difficult to stay on track. Accountability is an important component of maintaining financial health. That’s what we specialize in, and you can serve as your graduate’s accountability partner until he or she begins working with a financial advisor.
5: Engage your financial advisor
In fact, we invite you to ask your financial advisor to help with this transition. We consider it an honor to work with our clients’ children and grandchildren. We enjoy guiding young people as they begin their higher education and careers armed with solid financial knowledge and expert ongoing advice.
We often conduct family financial-planning sessions to help align generational strategies and to ensure everyone in the family understands and supports the family’s financial goals.
________
People refer to a graduation ceremony as “commencement,” or beginning. Like graduation, a solid financial start in adulthood is a fresh new beginning. I hope you will contact us today to schedule a graduation financial review. A strong financial start is the best gift you can give any graduate. And while you are here, we will adjust your financial plan as needed for this new phase.
