Raising children is a rewarding experience, but it’s no secret that it comes with financial challenges, especially when it comes to funding their college education. Many parents eagerly anticipate the day their kids graduate, not only for the pride that comes with their achievements but also for the financial relief it promises. But will your cash flow really improve once they’ve crossed that stage?
One might assume that available cash flow increases following a child’s college graduation. After all, one of the most significant expenses is tuition, which will no longer be a regular outflow. Costs for textbooks, lab fees, extra-curricular activities, and other school supplies will stop. If you were paying for transportation to and from school, these might decrease. Even if a child lives at home with you after graduation, covering housing costs and other living expenses may be reduced compared to college room and board.
But potential increases in expenses are also possible. If loans were used to finance the education, you may begin a repayment period. With or without loans, you may be helping a child financially during a transition from school to the workforce. That help may be on one-time items like a car or recurring expenses like rent assistance. Indirectly, you may lose income tax benefits related to education. You might also cover health care costs and continue to keep your child on your own health insurance plan.
Other non-recurring big-ticket items could take the place of annual tuition costs. The “bank of mom and dad” is often the source of a down payment for a first home, new business venture, or wedding. Or it could be that your retirement security regains focus and the “found” money is put back to maximizing retirement plan contributions or reducing non-college debt. Those in the sandwich generation may find cash flow is allocated from helping young-adult children to assisting ageing parents.
Additional changes to your cash flow at this time could be voluntary and intentional, rather than reactive. For example, you may choose to reallocate college savings and tuition costs to your own travel and leisure. Perhaps delayed spending plans, like home improvement, are put into action once children gain some independence.
While in most cases your cash flow should improve once your kids graduate college, the extent of that improvement depends on a variety of factors. Considering all of the above, this stage in life is a good time to reassess your financial health. If you have been busy raising your kids to this point, you may have neglected your estate plan or insurance coverage, just two examples we often encounter advising clients. Adjustments to your financial plan may get you closer to meeting your goals – and you may even reconsider what your goals are or how to prioritize them.
Related Articles:
Post-College Financial Planning | Heritage Financial Services
5 Money Tips For College Graduates | Heritage Financial Services
