How Recent Grads Can Achieve Financial Independence While Still Living at Home
It’s become more common for college students to move back home after graduating, and the pandemic seems to have brought this trend to new levels — a recent GOBankingRates survey found that almost half of Gen Z adults considered it during the pandemic, and 33% did move home.
When you’re living with mom and dad or other caregivers, it can be easy to fall into old habits, including relying on your parents to take care of you financially. But even if you’re living at home, it’s important for recent grads to establish some financial independence now so that you’re ready for the real world when you do move out.
Here are a few ways to gain financial independence while you’re still living at home.
Master the Basics
A recent Bank of America survey found that only 45% of college students practice budgeting.
“Budgeting is a critically important skill to help plan, save and address financial anxiety — not to mention the first step to achieving financial stability,” said Erin McCullen, head of deposit products at Bank of America.
If you’re in the majority who don’t budget, start now.
“Use the principles of budgeting to take a look at how much money you have coming in and going out. Then, divide your spending into wants and needs to find where you can save,” McCullen said. “When it comes to financial independence, being self-reliant is key — and that starts with understanding your financial picture.”
Pay Yourself First
Since you may not have to pay rent or for other expenses like utilities and groceries, use this time to build up your savings — and do this by paying yourself first.
“While the importance of saving may seem obvious, the recipe for success is less-so,” McCullen said. “Prioritize making consistent contributions rather than a one-time lump sum. Set up re-occurring transfers on payday to automatically deposit money into your savings. Whether you’re setting aside $20 or 20%, the most important thing is that you do this regularly. Once you’ve built a solid savings foundation, financial independence will feel more attainable.”
If your parents are allowing you to live at home rent-free, you should still get used to how paying rent will affect your cash flow so that you can prepare to move out.
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“Practice paying for housing by depositing a rent-equivalent amount into a savings account each month,” McCullen said. “This helps you save while preparing your budget and avoiding the sticker shock of living on your own for the first time.”
Separate Your Finances From Your Parents’
“Set up your own bank account and credit card to establish a financial paper trail, while taking responsibility for your own credit, spending and saving,” McCullen said. “Choose banking products that make the most sense for you by asking important questions such as: Are there any fees? Does it require a minimum deposit or monthly spend?”
Opening a credit card will not only teach you about spending and saving, but it’s also an important step in establishing good credit.
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“It’s best to begin building credit during young adulthood because establishing good credit takes time,” McCullen said. “The Bank of America survey found only 15% of college students review their credit report and/or FICO score. Being aware 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.”
Choose a credit card that will provide the most benefits for you.
“When selecting a credit card, use your budgeting exercise to find out where you’re spending the most money and choose an option that rewards your habits,” McCullen said. “For example, if you’re like most young adults, dining out and groceries may be your biggest, non-rent expenses — a financially savvy spender would choose a card that rewards dining spending with flexible redemption options.”
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