Many young adults are struggling to forge their own financial paths. A new study conducted by Insuranks found that 1 in 3 millennials and Gen Zers are not financially independent. Unsurprisingly, Gen Z is more likely to be financially dependent on their family than millennials — 54% of Gen Z said they are not financially independent versus 25% of millennials.
The survey also looked into the ways these generations are financially reliant on their parents. It found that 51% of Gen Z and 19% of millennials are currently living with their parents, and 36% of Gen Z and 17% of millennials got help with their rent or mortgage over the past year. In addition, 54% of Gen Z and 26% of millennials said that their parents helped them pay for something in the past year.
Although many young adults are not financially independent, a good amount want to be. Forty-one percent of Gen Z and millennials said they feel like they rely too much on their family as an adult. For those in this boat, use these expert-approved tips to cut the financial cord.
Set Goals for the Short and Long Term
The first step in achieving financial independence is figuring out how to do so. Set goals for the short and long term that will get you closer to this ultimate goal. Short-term goals could include reigning in spending and building an emergency fund.
“Use the SMART technique and set measurable and attainable goals,” said Joe Buhrmann, CFP and senior financial planning consultant at eMoney Advisor. “Perhaps it is saving a specific amount each paycheck, paying down credit card debt over the next 12 months or increasing your savings.”
Get a Handle on Your Cash Flow
Track your sources of income and see where your money is going. If your expenses are currently more than your income, you will need to make some adjustments.
“Look for ways to trim expenses and/or boost income,” Buhrmann said. “Ditch some of the subscriptions or take opportunities to shop differently — think thrift shops and discount grocery stores — or dine in more. In today’s gig economy, there may be ways for you to shore up the income side of the equation as well.”
Build Up Your Credit
“It’s best to begin building credit during young adulthood because establishing good credit takes time,” said Mary Hines Droesch, head of consumer and small business products at Bank of America. “Being aware of how credit works and practicing good credit card habits can help pave the way for major purchases and life moments, since credit impacts future living arrangements, the ability to purchase a car and even employment opportunities.”
This means opening your own lines of credit if you haven’t done so yet.
“If you don’t have separate banking accounts or credit cards from your parents, you’ll want to establish your own,” said Mariana Martinez, senior family dynamics consultant at Wells Fargo Private Bank.
Limit Taking on Debt
To get your finances in a good place, it’s important to avoid taking out loans or putting purchases on a credit card that you can’t pay off.
“Debt is much more easily acquired than it is to extinguish,” said Robert R. Johnson, Ph.D., CFA, professor at the Heider College of Business, Creighton University.
Make Savings Automatic
“One of the biggest behavioral biases that humans succumb to is the bias toward immediate gratification over delayed gratification,” Johnson said. “It is exceedingly difficult for many people to imagine their future self and give up that vacation or new car today in lieu of having money to retire on in the distant future.”
That’s why it’s essential to automate as many financial decisions as possible, including making savings automatic.
“Automatic savings plans can take many forms,” Johnson said. “For instance, one can have a specific dollar amount or salary percentage taken out of each paycheck and put in savings. The biggest advantage of automatic plans is the behavioral underpinnings of the plans. If we are enrolled in an automatic savings plan, inertia and the inherent laziness of people tend to work in our favor. That is, once enrolled in an automatic savings plan, people tend to stay enrolled.”
You may also make automatic contributions from your paycheck toward paying down debt to help ensure you get your finances on track.
Don’t Let Spending Increase With Salary Increases
“Lifestyle creep” can make it harder to improve your financial standing, even as your earnings increase.
“The most common mistake people make is letting their spending increase commensurate with their new salary,” Johnson said. “For instance, people buy a more expensive car to reward themselves for receiving the raise. What happens is they are unable to improve their financial condition because they spend everything they make.”
Instead of spending the increased earnings, save or invest this money.
“Continue to live the same lifestyle you led before receiving a raise,” Johnson said.
Enhancing your financial literacy will put you in a better place to reach financial independence. There are a number of ways you can increase this knowledge.
“Read your credit card statements in their entirety and check out how long you’ll be paying down a balance if you only make minimum payments,” Buhrmann said. “Check out financial guides from your 401(k) provider or investment websites. Invest in yourself to improve your knowledge and awareness — it will pay dividends for years to come.”
In addition, tap into any resources that may be available to you.
“Many employers offer guidance resources to trained professionals to assist with money issues,” Buhrmann said. “You may also be able to lean on other financial professionals, such as a financial planner or financial therapist.”
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