One of the first times you feel that you’re actually “adulting” is when you can finally stop asking your parents for money. We all feel a sense of accomplishment when we’re finally able to say that we’re handling our expenses on our own.
Keep reading for everything you need to know to become financially independent.
Of course, this is a lot easier said than done. Making and managing money all on your own can be a huge step.
What Is Financial Independence?
Financial independence is when you no longer have to rely on others to pay for your living expenses. This means no more calls to mom asking for a little help with gas money, rent money, or any money.
So, how do you make the switch from being supported by your parents to being supported by your own paycheck?
How to Be Financially Independent
There are two simple-ish steps to getting from where you are now to accomplishing your initial financial goals.
Step one: Make some money.
Step two: Manage your money well enough so that you can stop asking your parents for theirs.
Learn How To Manage Your Money
No matter how little money you may have, creating a budget can ensure that it’s going to where it’s needed. Your budget will account for all of your expenses and be an overall guide to managing your money.
If your parents’ money isn’t considered a part of your budgeting plan, then there’s no need to ask for it. Your budget will also account for an emergency fund, so don’t worry about slip-ups there.
If you’re just getting into money management and aren’t sure where to start, we’ve got you covered. A quick look into our Budgeting 101 guide will help you determine your after-tax income, create a weekly budget, and start saving money.
Once you’ve learned how to manage your money, it’s time to put that knowledge into practice.
Treat Your Savings Account Like It’s Your Parents’
A large portion of your income will go towards building up your savings. It’s tempting to touch the money you’ve stored away, but be strong! Try to look at your savings account as if it’s being managed by your parents.
Once money goes into your savings, it should rarely ever be taken out. Your savings is a sum meant for big-ticket items, the kinds of things you’d expect your parents to support you in purchasing.
Think to yourself, would my dad suggest that I use this money as a security deposit on an apartment or to buy myself tickets to see Pitbull? Then make your purchasing decisions. The self-questioning might even satisfy your impulse to ask your parents for money.
If you look at your savings account like it’s just extra money waiting to be spent, then you’ll spend it.
Push yourself to change the way you think about your savings. This strategy will help you better manage your finances all around.
Use The Right Tools
Having personal finances and a budget will get you started, but a tool to optimize both will get you further. We recommend you begin your journey to independence with a debit card.
When you swipe with a debit card, it’s charged directly to your checking account. Your checking account is most likely where you’ll have your paychecks deposited. With the money in your checking account, you can swipe your card according to your budget, and therefore, avoid overspending.
You may also want to look into having a portion of your paychecks automatically deposited directly into your savings account. A direct deposit program that separates your funds will help ensure that when you swipe your debit card you’re never digging into your savings. When your money goes into the correct bank account, it makes keeping to your budget that much easier.
Beware Of Credit Cards And Credit Lines
When using a credit card, money management is often challenging for those who are just starting to become financially independent. Unlike a debit card, credit cards are charged to a line of credit. A line of credit is a preset amount of money that a financial institution, like a bank, has agreed to lend you.
A beginner’s credit line can sometimes go up to $5,000, and interest rates can get pretty hefty. For a lot of us, if the money’s available, we’re going to spend it, making budgeting with a credit card a lot harder to stick to.
Credit cards are a lot more intimidating than debit cards. It’s a lot scarier to owe money to a financial institution than to owe good ol’ Pawpaw, not to mention, Pawpaw only has $200 to spare, not $5,000. Because many of us don’t want to take the risk of using a credit card, we continue to ask our parents for money.
Going from depending on your parents to depending on a line of credit seems like two steps backward. We suggest starting out with a debit card instead.
Start Building Up A Credit History
Despite being in the early stages of financial independence, many find themselves applying for a credit card. Most see credit cards as a means to developing a history of credit.
Having a credit history is what determines one’s credit score. Your credit score is a 3-digit number that represents how well you’ve managed the money that you’ve borrowed, or your “creditworthiness”. For better or worse, the money that you’ve borrowed from your parents isn’t recorded as a part of that history.
Having a credit score may not seem all that important to you now, but it will be later on. From apartment applications to car loans, your credit score will help you reach some major life milestones without the help of your parents. The sooner you can start building your credit, the better.
Want to stick to your budget and build credit? Extra is the first debit card that builds your credit history and earns rewards points just like a credit card. The Extra debit card will help you stick to that budget we talked about, and build the credit score that you’re going to need.
At the end of each month, Extra totals up all of your transactions and reports them to credit bureaus as credit-worthy payments. Extra makes sure that you’re getting credit for being financially responsible. Every purchase that you make with your Extra card will help build your credit score.
Real adulting is being brave enough to work towards achieving financial independence while being responsible enough to know your limits.
Ask Your Parents For Advice, Not Money
Just because you’re no longer asking your parents for money doesn’t mean you can’t rely on them for financial advice.
Falling down the rabbit hole of Google, Youtube, and worst of all, money management TikTok can become overwhelming. Your parents have been where you are now, and at one point, they weren’t adulting yet either.
“If I could do it all over again” perspectives are valuable. Get your parents’ insights on budgeting, debit cards, and the importance of having a strong credit score. You might not feel proud to ask them for money, but you’ll be proud of yourself for learning from their mistakes.