Buy a first home. Start a family. Once the aspirations of newly graduated young adults, these fundamental financial priorities hardly rate among millennials whose first hope is to get a good-paying job so they don’t have to rely on their parents for financial support. That’s according to a report from Bank of America, in which 39 percent of young adults – age 18 to 26 – said that “financial independence” was their top priority.
Young adulthood is being redefined by today’s young adults who are under-prepared financially to strike out on their own, relying at least in part on their parents for financial assistance. Nearly half of millennials accept financial help from their parents for ongoing expenses such as groceries, utilities, or paying the rent, according to a Fidelity study. The same study reveals one out of five older millennials – age 25 to 35 – still live in their parents’ home, waiting until they can save money to strike out on their own.
The strategy may very well be working. The Fidelity survey also shows that 85 percent of millennials are saving money as a result of their parents’ assistance. While that is certainly a step in the right direction, the goal of becoming independent from parents could remain elusive without a proactive plan to actually achieve it. Here are five steps you need to take starting today.
1. Establish Objectives and a Timeline
Yes, the goal is to become financially independent from your parents, but it can’t happen overnight unless you are able to go cold turkey. The best way to achieve a financial goal is to break it down into objectives along a timeline. As you meet each objective, you get closer to your goal.
The first objective might be to reduce your expenses as you begin to gradually detach yourself from your parents’ subsidies. The next objectives could be taking on one additional expense every other month over a period of six to 12 months.
Be sure to share your objectives and timeline with your parents so they can encourage you. They need to know you are serious about achieving your goal, and you don’t want them to be enablers in keeping you dependent.
2. Live Beneath Your Means
The key to achieving most financial goals is to live beneath your means. Many young adults already make enough money to afford their own expenses, but they have yet to gain control of their spending.
Use a spreadsheet to list all of your expenses – essential and nonessential. Essential expenses are your rent, utilities, food, and transportation. Nonessential expenses are things such as cable TV (consider whether you really need 177 channels), leisure and entertainment activities, dining out (include those Starbucks lattes), and new clothes (except for work).
First look to see what nonessential expenses you can reduce or eliminate for a period of time. Then see how you can reduce some of your essential expenses. The goal is to increase your excess cash flow, which can be applied to savings or paying down debt. Apps such as Mint or BudgetPulse can be very helpful in managing your budget and tracking your expenses.
3. Pay Your Parents for Rent
If you are still living with your parents, start paying for your portion of rent and utilities. The point is to begin managing your finances as if you were on your own.
It will also be easier for your parents to hold you accountable. Your parents can set the money aside in a savings account for your use when you are able to move out on your own.
4. Make More Money
This might be easier said than done, but if you are in this position because your income isn’t what it could or should be, now is the time to start changing that. You might already be working on getting a better or higher-paying job. That could take time, so look for opportunities to supplement your income by taking on a part-time job.
Even 10 hours extra per week could put a few hundred dollars a month toward savings or debt. Monetize your talent by becoming a freelancer on Upwork.com, where you can find thousands of projects or jobs posted daily. This will bridge the income gap until a better-paying job comes along.
5. Commit to Paying Off and Staying Out of Debt
If student loan payments are weighing you down, make it a primary target of your new budget and spending plan. You can also see about reducing your monthly payments by converting your federal loans into an income-based repayment plan or refinancing them at lower rates.
If you have credit card debt, make it your top priority to pay off your high-interest balances. Instead of taking financial assistance from your parents for living expenses, consider asking them for a personal loan to pay off your credit card debt and then vow to avoid using credit cards unless you have the cash to pay the balance in full.
It’s important not to feel sorry for yourself. You are not alone. There are millions of people in similar situations, feeling trapped by their circumstances. You need to change your circumstances, and that starts with making a commitment.
Don’t think of this as self-sacrifice, think of it as delayed gratification. You need to get off your parents’ payroll, and the only way to do that is by taking on more financial responsibility. The closer you get to achieving your objectives, the closer you are to financial emancipation, which is the gateway to adulthood.