It is more common than ever for adult children to live with their parents, with the 2021 U.S. Census Bureau estimating that one in three adults who are 20 to 34 years old live at home. Plus, even more than that receive at least some financial support from their parents on a regular basis. However, having a child at home can put a huge strain on your finances, and sometimes even force you to delay retirement. If you are ready to get your child out on his or her own, go through a few steps to help your child get ready to be truly financially independent. One of the first issues is that many adult children don’t even realize what sorts of things they will need to be spending money on when they are heading up their own households. These are things that you cover and they just take for granted without realizing. If you are comfortable with it, share your household expense sheet with your son or daughter to help open their eyes to where money goes. Some expenses to make sure you discuss include: Your child will not be able to move out for good until he or she has a balanced budget where the monthly expenses are less than the monthly after-tax income. Otherwise, you will probably be getting quite a few phone calls or texts requesting money to make ends meet, or a panicked moment a year down the road when the credit card is finally maxed out. You can help prepare your child by creating a detailed and balanced budget. This step will involve some research into what actual costs are in the area where your child plans to live and at the standard of living your child envisions maintaining. The tricky part is that often, the standard of living your child wants cannot be supported by his or her income. You will need to help guide your child to make the tough decisions about where to cut costs to create a balanced budget. Look to have them live with a roommate to minimize rent and utility costs; choose a used car instead of a new one; or dine at home more to minimize the cost of food and beverages from restaurants and bars. Even if your child has a budget ready, there’s still the hurdle of actually going through with the move. Parents have found that each of the following strategies can help the transition happen more smoothly.

Getting Your Child’s Finances ‘Move-Out’ Ready

View Resource Getting Your Child’s Finances ‘Move-Out’ Ready
When you have a parent, sibling, or another family member who is planning to move, you may be able to be first in line to buy their home. Plus, they may even offer you a price below market value to help you out, especially because they will not be paying a hefty commission to a real estate agent. It sounds like a great idea on the surface, but remember that buying a home is a huge financial transaction. It will be important that you follow some specific guidelines to ensure that the purchase goes through smoothly and you are both protected legally from future repercussions. How to structure the purchase Your first step is to agree on a purchase price for the home. Keep in mind that if you pay less than fair market value for the home, you could be stuck with big capital gains taxes if you sell it again too soon. In addition, your family member may trigger a tax audit if the discount is too steep. One way to structure the purchase is to get a third-party appraisal to determine the fair market value, then agree on a purchase price close to that amount. Your family member can then offer to pay all of the closing costs to help give you a discount, if they want to. Before proceeding, get a home inspection so you have a complete understanding of the condition of the home. Even if you have spent much time there, the house may have structural or system issues of which you are unaware. Your family member who is selling it may not be aware of them either. An independent home inspector can provide a thorough assessment of the home’s condition and bring to your attention any existing issues. If needed, you and your family member can renegotiate your deal based on the findings of the inspection. Obtaining financing to purchase a home from a family member Your family member might offer to finance the purchase for you, meaning that you would make payments to them rather than to a bank. While this might sound like a good idea, it can complicate your relationship if you fall behind on payments. Doing so would leave your family member in the tough spot of having to decide whether to pursue foreclosure or to let it slide. The best option is for you to obtain financing through a traditional lender. With interest rates as low as they have been lately, it is a small sacrifice to help preserve family relationships. Get pre-qualified for the mortgage before your family member hires any legal help for the transaction, just to ensure that your credit score and income are sufficient. When you apply for your mortgage, you should also disclose that this is a sale between family members. Proper documentation for a real estate transaction between family members Buying a home is a legal transaction, and you must ensure that the documentation is properly completed. If not, you could run into problems with ownership claims down the road. Manage documentation with the help of two professionals:

Buying a Home from a Family Member

View Resource Buying a Home from a Family Member
If you are tired of being in debt, a “credit-free” life might sound appealing. All you have to do is pay off all of your debts, cut up your credit cards, close any other accounts, and get yourself completely off the credit grid. Then you can live within your means in a completely cash-based system. Being credit-free has plenty of perks, but it also has complications you need to understand if you are thinking about making the transition. Advantages of Being Credit-Free One of the biggest perks of not having any credit-related accounts is that you do not have to pay interest or make debt payments, which frees up your money, giving you greater discretionary spending ability. For example, the typical household credit card debt of $7,000 at a 15% interest rate costs over $1,000 per year in interest. If you are not carrying that debt, the $1,000 will be available for you to spend or save as you like. People who tend to overspend on credit cards will reap financial rewards from being credit-free because it becomes impossible to overspend. When you do not have credit, the decision of whether or not to buy something is not tied only to emotion, but also to how much money you have available in your wallet or your bank account. In addition to the financial advantages, you also have emotional perks. Being in debt is stressful because you spend your time and energy worrying about making payments or working extra hard to get out of debt. Many people feel a sense of freedom when they live credit-free. Disadvantages of Living Without Credit The main disadvantage of living without credit is that you will not have a credit score. Because your credit score is derived from data in your credit report, you will not have a score at all if your report is empty. This may make it difficult if you ever decide to get credit again, to buy a car or house for example. Also, insurance companies and employers sometimes check credit scores as well, and you may run into difficulties with them if you do not have a score. The other disadvantage of living without access to credit is that you do not have the ability borrow on credit to use as a financial safety net. You need to build up significant savings to be your new safety net, and sometimes it is hard to know exactly how much money you will need to have saved. Tips for Making a Credit-Free Life Work for You
  1. Get out of debt as quickly as possible once you have made the decision to live credit-free. Stop buying anything on credit, and start making more than the minimum payments, focusing on paying off one account at a time. Close accounts once they are paid off.

  2. Build up an emergency fund of three to six months of basic living expenses. If you lose your job, you will not have credit cards to fall back on to make ends meet. Your emergency fund can also cover unexpected expenses, like car repairs. If you ever have to use money from the fund, replenish it as soon as you can.

  3. Use long-term budgeting strategies for major expenses. Think forward to your anticipated expenses in the coming year, like vacations, home repairs, or holiday gifts, and set money aside for these expenses every month. Use the same strategy to save up to buy your next car, or even a house.

  4. Consider keeping one credit card account open, but completely unused, if you feel it necessary to maintain a credit score. This open account will continue to appear on your credit report and generate a credit score for you. However, be aware that you may need make an occasional small purchase (and pay it off immediately) to keep the credit card issuer from closing the account due to inactivity.

Living a ‘Credit-Free’ Life

View Resource Living a ‘Credit-Free’ Life
When you own a home and need additional cash flow, a reverse mortgage is one way to get it. A reverse mortgage allows you to tap into your home equity, which is the money your home is worth, without having to sell your home. It is called a reverse mortgage because rather than you sending a check to the bank each month, the bank sends a check to you every month. Alternately, some reverse mortgages are set up so the bank gives you a lump sum when you first get the mortgage, or you have a line of credit that you can draw from as you need money. You can use the money for any purpose, including supplementing retirement income, making home improvements, or paying for health care expenses. Before you consider getting a reverse mortgage, it is important to understand exactly how it works. The basic idea is that a bank lends you part of your home equity for as long as you are living in the home. The money lent to you accrues interest each month, but you do not need to make any payments back to the bank until you sell your home, stop using it as your primary residence, or die. At that point, the reverse mortgage is due in full. Most borrowers end up using the proceeds from selling the home to pay back the reverse mortgage. Eligibility requirements to get a reverse mortgage Advantages of reverse mortgages When you are living on a fixed income during retirement, a reverse mortgage has a few facets that make it very appealing. If these advantages fit with your desires, you may be a good candidate for a reverse mortgage. Disadvantages of reverse mortgages Before you jump into getting a reverse mortgage, you need understand the disadvantages of this financial decision. It can have serious repercussions, not only for you but also for your family and heirs.

Is a Reverse Mortgage Right for You?

View Resource Is a Reverse Mortgage Right for You?
When you are borrowing money, one of the main numbers to consider is the annual percentage rate, typically abbreviated as APR. The APR is the percent of the borrowed amount that you are expected to pay each year in interest and fees, spread over the life of the loan. The APR is slightly different from the interest rate because the APR also includes required introductory fees in the calculation. For example, on a mortgage, you have loan origination fees and closing fees that you must pay to get the loan. The APR helps you understand how these fees affect your total costs, assuming you keep the loan for the full repayment term. If there are no introductory fees, the APR is the same as the annual interest rate on the loan. Types of APR APRs come in two main types: fixed and variable. A fixed APR does not change on a regular basis, but a variable APR will adjust depending on market factors. Some loans, especially credit cards, can have several different types of APRs. These include:

Calculating Annual Percentage Rates

View Resource Calculating Annual Percentage Rates
Consumer reporting agencies, sometimes abbreviated CRAs and also known as credit bureaus, collect credit information about individuals and sell this information to third parties upon request. In the United States, the three main consumer reporting agencies are Equifax, TransUnion, and Experian. Each of these companies maintains an ongoing file for you called a credit report. Your credit report contains: How to get your credit report When you apply for a loan, the lender will usually purchase a copy of your credit report from at least one of the credit bureaus to get more information about how well you have managed credit in the past. This information helps the lender decide whether to issue you a new loan and what interest rate to charge. Insurance companies, employers, and landlords also often use your credit report to make decisions. Therefore, it is important for you to know how to get your credit report. United States law allows you to get a free copy of your credit report from each of the three major credit bureaus (Equifax, TransUnion, and Experian) every year. To get this free credit report, go to AnnualCreditReport.com or call or call (877) 322-8228. While other websites and services may advertise free reports, you often have to sign up for a service to get these reports. Protect yourself from scams by only using AnnualCreditReport.com to get your credit report.

Consumer Reporting Agencies

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On any loan, your monthly payment is divided between two purposes. First, part of the payment is used to cover the interest that has accrued on your balance since you made your last payment. Second, any remaining portion of your payment goes toward reducing your loan balance. Because of this, once you have paid the interest for a month, any extra money you add to your monthly payment will go directly toward reducing your loan balance. This can save you a lot of money in the long run. Most of your savings comes from the fact that your interest payment for every future month on your payment plan will be less than it would have been if you hadn’t made the extra payment. Especially if you still have 20 years or more left on your mortgage, that’s lots of months when you can save money on interest. And the less interest you pay, the more of your regular monthly payment will go toward paying down principal. The effects really do snowball, often to significant end results. Example of Saving Money by Adding to Monthly Payments A concrete example can help illustrate how the savings adds up. Let’s say that you just took out a mortgage for $240,000 at 4% annual interest, with a repayment term of 30 years (or 360 monthly payments). Based on these numbers, your lender would calculate a monthly principal and interest payment of $1,145.80. When you send your first payment of $1,145.80, your lender first covers the accrued interest. An annual interest rate of 4% is a monthly interest rate of 0.33%. Your loan balance is $240,000, so you would owe $240,000 x .00333333, or $800, in interest. Once that has been paid, the remaining $345.80 reduces your loan balance, so you now only owe the bank $239,654.20. The next month, you will only owe $798.85 in interest because your balance is lower, so you pay $346.95 toward principal and have a new loan balance of $239,307.25. After 360 payments, you will have paid a total of $172,486.82 in interest. Now, say that you decided to make an extra mortgage payment of $200 every month. Your first month, you will pay the $800 in interest but pay off $545.80 of your loan balance, leaving you owing $239,454.20. The following month, your interest payment will be down to $798.18 (67 cents less than if you hadn’t made the extra payment), and you will pay $547.62 of your loan balance, reducing it to $238,906.59. If you continue this, you will pay off the mortgage 88 months early. The best part is that you will have only paid $124,979.70 in interest, for savings of $47,507.12. That’s a big result from a relatively small monthly difference.

Add to Your Monthly Payment and Save Money

View Resource Add to Your Monthly Payment and Save Money
Your debt-to-income ratio (DTI) is the percent of your gross monthly income that goes toward required debt payments. This number allows potential lenders to see at a glance whether you are likely to be able to afford additional debt payments. Types of Debt-to-Income Ratios Calculating Your Debt-to-Income Ratios Start by determining your gross monthly income, which is your income before taxes and deductions. You can either divide your annual income by 12, multiply your bi-weekly income by 2.17, or multiply your weekly income by 4.33. If you are planning to purchase a home jointly with your spouse, do the same calculations for your spouse’s income and add the results together to get your total household income. Add up all of your potential housing payments for the home you are looking to buy. This includes not only the mortgage principal and interest, but also monthly costs for homeowner’s insurance, mortgage insurance, and property taxes. Then also list your other debt payments, which may include car loan or lease payments, student loan payments, minimum credit card payments, and all other monthly debt payments that appear on your credit report. Calculate your front-end DTI ratio by dividing your housing payments by your monthly income. Calculate your back-end DTI ratio by dividing your total of all debt payments by your monthly income. What if Your Debt-to-Income Ratio is Too High? Lenders vary in the specific DTI ratios they are looking for, but in general, lenders want to see a maximum front-end ratio somewhere between 28% and 31% and a maximum back-end ratio somewhere between 36% and 43%, depending on the lender and loan program. If your ratio is too high, some of these strategies could help you qualify:

Understanding Your Debt-to-Income Ratio

View Resource Understanding Your Debt-to-Income Ratio
Most households plan to live on their regular income, which usually comes in the form of a monthly or weekly paycheck. However, there are always the occasional windfalls when you receive a large amount of money that you may not have been expecting. Some common lump sums come from inheritances, bonuses at work, tax refunds, court settlements, or the sale of investments. If you receive a lump sum of money, it’s important to consider how you can use it to achieve your financial and personal goals. Pay down debt: One of the best long-term investments you can make is to pay off high-interest debt now. This is especially true of credit card debt, which is likely costing you between 10% and 15% a year, which is much more than you can reliably make by investing your money. Even if you can’t completely pay off a credit card, even just paying down the balance makes a big difference by reducing your interest costs each month going forward so you can pay off the credit card faster. Build your emergency fund: Every household should have at least $1,000 saved in an easily accessed emergency fund. That way, if urgent expenses arise, like a car repair, home repair, or need to travel, you have the money available and won’t have to turn to credit cards to cover the cost. Also, to protect against job loss, you should ideally have 3-6 months of basic living expenses saved to cover the regular bills while you look for other work. Save and invest: If you are in a good place financially right now, then it is time to consider how you can make your lump sum of money grow to support you better in the future. Some options in this category include: Treat yourself: Even if you use most of the lump sum for one of the above purposes, consider holding back at least a little of it to spend on something that you have wanted for a long time. Perhaps you have wanted a new TV, new furniture, a vacation, or even just a weekend trip. Spending some money on yourself can give you an emotional boost rather than feeling resentful that you didn’t get to use the windfall you received.

What to Do With a Lump Sum of Money

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Online shopping has become increasingly common in recent years as a convenient alternative to going out to stores. However, the time and energy you save by shopping online could be lost if you fall victim to identity theft due to a misstep in your online shopping habits. Your first rule when shopping online is only to shop through websites you trust. If you have not heard of a particular shopping site, look for information about it through a search engine to help you figure out whether it has a good or bad reputation. Then, rather than following a link from an email or social media post, go directly to the website where you want to make the purchase. Some sophisticated hackers make dummy websites that look like the real ones, but will steal the information you enter. Wherever you end up shopping, use these tips to help you protect yourself and your sensitive information:

Shopping Safely Online

View Resource Shopping Safely Online