Children leaving home for college brings a mix of emotions to any parent. But as your kids begin a new life milestone, everything that will unfold during this important period isn't only about them: Your own lifestyle and personal finances will take a dramatic turn.
Now that you're an empty nester, take an opportunity to sit down and review your banking, insurance and investments to make sure they still align with your goals. We chatted with Justin Waring, Investment Strategies Americas, UBS, for money management insights as you begin this new phase of your life.
Budget and cash flow review
Your regular costs and spending habits shift once your teen leaves the house. "The first thing I would look at is recalibrating your spending needs now that you have fewer people in the house," says Waring. "You'll probably have a little more flexibility on what you can spend money on, and you may also want to look at downsizing—or relocating—to help stretch your 'retirement dollar' a little further."
Take a hard look at where your money goes every month and if that aligns with your financial goals. With fewer expenses around the house and one less mouth to feed, you may have new funds freed up for both savings and lifestyle improvements.
Waring notes that "this tends to be around the period when you are entering or nearing retirement." Make sure to fund your retirement goals first before spending on fun things like vacations and new cars.
Boost your retirement savings
Your retirement should be a primary financial focus for your family once your kids leave the house. Most Americans are far behind where they should be for retirement savings.
"As a percentage of your income, you should likely be saving more than at any other point in your career," Waring explains. "Your net worth is probably the highest it has ever been, but to meet your retirement needs, you will likely need to save more than the maximum that you can contribute to your retirement accounts."
Check in on your retirement balances and compare to your projected needs in retirement. Also, remember that most people are going to have ample health expenses in retirement. You can better ensure a comfortable retirement by focusing on your savings goals now.
Health and life insurance audit
Because your kids can stay on your health insurance through age 25 under the Affordable Care Act, you likely won't see any changes to your insurance right away. But that doesn't mean this isn't a good opportunity to hunt for savings.
If your child is in college, in some cases he or she can join a health plan through school that is cheaper than your employer-sponsored or other current plan. Look at your health insurance to make sure it still offers the best value for your needs, and consider ramping up contributions to Health Savings Accounts, which can offer a tax-advantaged solution for meeting future health costs. Consider moving kids to their own insurance through their school if it offers significant savings and a comparable level of coverage.
At the same time, sit down and review your current life insurance to ensure your coverage is up to par for your family's changing needs, including your spouse's long-term financial needs and any promises to help a child pay for college.
Turn this moment into an opportunity
Sending a child out into the world means big changes back home. Take advantage of this unique moment to review, improve and solidify your personal finances.
If you use this time to make adjustments to your financial plan, you are setting yourself up for long-term monetary success—and that's what responsible personal finance management is all about.