Boomerang kids: Your plan for financial independence

With a degree and a heap of debt, more and more Millennials are returning home after graduation. Just over 42 per cent of adults aged 20 to 29 are living with their parents, according to 2011 Statistics Canada census data —well above 1981’s level of nearly 27 per cent. But with a little planning, they’ll be well-equipped to fly from the nest for good.

“Start by having an open conversation,” says Calgary TD Canada Trust branch manager Shawnnette Fraser. “We always recommend Boomers and their children have an honest conversation to make sure everybody’s on the same page. There need to be clear expectations about whether grown children are paying any household expenses, and setting an end point is really important.”

American adults aged 18 to 34 think living at home for as long as five years after college is acceptable, a recent survey by Coldwell Banker Real Estate and psychotherapist Robi Ludwig found. Americans ages 55 and older, meanwhile, think it’s acceptable for grown children to live with their parents for as long as three years.

Pin-point the details

It’s not enough for Boomerang kids to say “I’m saving money to move out.” Rather, they need to get to the nitty-gritty of the numbers: how much will it actually cost to live on their own?

To figure that out, take pen to paper (or fingers to keypad) and outline what a typical month is going to look like when it comes to the following expenses:

• rent

• utilities

• Internet and cable connections

• cellphone charges

• home insurance

• loan payments

• groceries

• transportation costs

• entertainment expenses

Then there are one-offs such as a damage deposit and first and last months’ rent. Not to mention moving costs, hook-up fees for utilities and communication services, new furniture costs, etc.

With a deadline set for moving day, young adults can then do the math to establish how much money they need to have set aside so they can move out and stay out.

“The most important thing for Millennials is to prioritize what it is they want to accomplish, whether it’s home ownership or getting to a point where they can afford to live independently,” says Erin Roy, an Edward Jones financial advisor in Bayfield, Ont. “Then sit down and write out specific financial objectives.”

In other words, set up SMART goals: those that are specific, measurable, attainable, realistic, and time-bound.

Establish a regular savings plan

“The day their paycheque hits their account, place a certain amount of money in a TFSA (tax-free savings account) or an RRSP (registered retirement savings plan),” through an automatic withdrawal, Roy says, noting that RRSP funds can be used by first-timers for the Home Buyers’ Plan. “In addition to accumulating savings, they’re also getting a tax savings.”

Roy also suggests that those lucky enough to have a pension plan through work understand exactly what’s being offered. “Take full advantage of those types of plans,” she says. “Perhaps they [Boomerang kids] can reorganize their savings commitments by taking into account money that’s being contributed on their behalf.”

Consider consolidating debt

It’s never a good idea to be paying monumental interest on credit-card balances or consumer loans, especially if you graduated with student debt. “Higher interest rates prevent getting debt in hand,” Roy says. “Ideally, young adults can simultaneously manage debt while accumulating savings. That’s achievable if they establish a disciplined plan and prioritize their objectives.”

Expect the unexpected

“In order to be independent, people need to be prepared for the unexpected: cars need repairs, taxes go up, a roof might need to be replaced,” Roy says. “Living pay cheque to pay cheque is not going to work.”

Financial experts recommend having an emergency fund that consists of three to six months’ of expenses to cover nasty surprises.

Look at your lifestyle

“We’ve got a lot of Millennials living in the same luxurious way as retirees: travelling, driving nice cars,” Roy notes. “Perhaps if they sat down and really thought about it those may not be their most important financial priorities.”

In other words, it may be worth not dining out as often to get of your parents’ basement.