It doesn't matter whether you recently completed your last semester of high school or plan on graduating from college in a few weeks, gaining financial independence from your parents isn't always easy. But if you expect to live like an adult, there are actions you can take today to make your transition to adulthood less stressful for everyone. Here are five ways young adults can become financially independent from their parents — one step at a time.
1. Create and Stick to a Budget
Regardless of how much you earn, a budget helps ensure you avoid overspending. When you keep tabs on your income and expenses, you can more easily live below your means — a guaranteed way to rely less on your parents for money.
Use a budgeting app or spreadsheet to record your take-home pay and expenses. If you spend more than you earn, you'll need to reduce your expenses or increase your income. Be prepared to update your budget as your earnings or expenses change.
2. Open a Bank Account
Checking and savings accounts offer a safe place for your hard-earned dollars — and maybe even earn interest. Use an EveryDay Checking Account with Interest to easily track your everyday spending. After paying your bills, deposit the money you have left into a savings account. If you don't have any expenses, commit to saving at least 50% of your paycheck. Grow your savings and use these funds for larger purchases like a car or moving expenses.
If you share an account with a parent, now is the time to establish your own account. Become familiar with online and mobile banking features that help make financial management less complicated.
3. Start an Emergency Savings Fund
When you have a regular income and few expenses, it's tempting to spend your entire paycheck without setting money aside for the future. But one day you'll encounter an emergency expense that could cost more than a single paycheck. If you have a financial cushion set aside when that time comes, you can avoid the need to borrow from the Bank of Mom and Dad.
Schedule automatic transfers so that 10% of your earnings move from your checking account to a designated savings account every month. Grow your fund to equal at least three months' worth of earnings.
4. Establish Good Credit
Credit history reports and credit scores reflect how well you keep your financial commitments. Cell phone providers, lenders, and landlords check your credit before deciding whether to do business with you. They want third-party assurance of how likely you are to make payments as agreed.
You don't need your parents' help to establish good credit. If you're at least 18 years old, you can apply for a secured credit card or a retail store card to help you establish credit. These cards welcome applicants with little or no credit history since they either require a security deposit or charge higher interest rates to offset the risk to the credit card company. Don't forget that student loan payments also help you build credit.
Practice smart credit habits by paying bills on time and keeping credit account balances low.
5. Pay Rent Now
Living rent-free could cost you a valuable money lesson. If you don't practice paying for rent, utilities, or food while under the safety net of your parents' roof, you'll be unprepared for the shock to your wallet.
Make rent-like payments to your parents now. If they're willing, they can deposit part or all of the funds into a high-yield savings account for you and, when you're ready to move out, they can return the money to you so you can use it to cover the security deposit, application fees, and first month's rent on your first place.
Life as a financially independent young adult could give you more freedom than you ever imagined. Use our financial resources to improve your personal finance IQ. You'll not only feel empowered, you'll also make your parents proud!
