Watch Your Step
If your child doesn't know most of the basic money concepts, maybe he shouldn't be too quick to move out on his own. He might not like to hear this, but he may benefit from some additional time at home to learn the money skills he needs to survive in the outside world.
Living on one's own is a natural part of growing up. Some kids put off the day of reckoning as long as possible, and some don't leave until they get married. Others stay at home for years—well into their 30s—because they like the conveniences you provide and don't want to live in the accommodations their wages can pay for. Kids who have gone off to college and then returned home to live are called “boomerang kids.”
Other kids are chomping at the bit to fly the coop. If your child has lived away at school, he already has had a taste of independence. He may be eager to move out on his own.
At some point, however, most kids clear out their closets for good. It's a big step, and an expensive one as well. Make sure that your child knows what it takes to live on his own and that he prepares accordingly.
He needs to know two things concerning what it costs to live on his own:
- The initial outlays he'll probably have to make
- The ongoing or monthly bills he'll have to pay
Knowing what it costs to move out will allow him to plan ahead so that he can start off on a sound financial footing.
First Things First
Moving out isn't as easy from a financial perspective as it may seem. It may take time and planning to be able to take the big step. Here's a listing of some initial costs that your child must have the cash to cover if she plans to move out on her own:
Piggybank on It
State law dictates how the landlord must treat a security deposit. In many states, the deposit must be held in a separate bank account and must earn interest. The tenant is entitled to this interest when the security deposit is refunded at the end of the lease.
- Lease security deposit. When she rents an apartment, generally she's required to pay not only the first month's rent, but also another amount equaling one or two months' rent. This is called a security deposit. For example, if her monthly rent is $500 and she's required to make a two-month security deposit, she'll have to come up with $1,500 to sign the lease ($500 for the first month's rent, plus $1,000 for the security deposit).
- Broker or rental agent's fee. In some places, rentals are hard to come by. Currently, New York, Boston, and San Francisco are experiencing new zero vacancy rates, which means that there aren't many apartments for rent. Your child may have to use an agent to help her find a place. An agent may charge a fee equal to one to two months' rent, or a percentage of the annual rent (such as 15 percent). Obviously, if your child can find a home without using an agent, she's ahead of the game because she can save on this expense. But if she wants or needs to live in a tight rental market, she may have no choice.
- Utility deposits. Some utility companies, such as the telephone company or the electric company, may require a deposit before starting your service. This is especially true if your child has never used the utility before and so has no track record of making payments on time.
- Moving costs. If she has a lot of things to move from your home to her own place and she doesn't have a truck she can borrow, she'll probably have to incur some moving expenses. She may not need to pay a professional mover, but she may have to rent a truck or a van to carry her things. To rent a truck or van, she'll have to show a major credit card. In some locations, she must be over a certain age to rent a vehicle.
- Fix-up costs. Generally, a landlord paints an apartment before it is rented. In some places, however, fix-up is up to the tenant. (Some landlords may, in fact, reduce the rent if a tenant agrees to fix up the place.) Before your child invests any serious money into her place, though, make sure that she knows what she can and cannot do. Check the lease for restrictions on papering, putting up walls, or making any structural alterations. (She may be able to do it if she agrees to put the place back the way she found it when she moves.)