Yahoo Finance How To Survive Financially When Your Parents Cut You Off
Leaving home for the first time, whether you're going off to college, or taking a year to experience life, is a big milestone for many young adults. While excitement and freedom may reign on one hand, reality will soon catch up, as many people's parents decide that their fledgling needs to finance their own life now.
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The moment you are cut off from your parents' financial largesse can be alarming, but it doesn't have to be if you are prepared. Here, experts offer tips and advice for how to navigate this important step in independence while staying financially afloat.
Last updated: Sept. 13, 2021
Make a Budget
The first place to start when you’re first on your own financially is to make a budget. According to Neiko Johnson, co-founder and editor of the blog Secret to Finance, try to apportion your expenses by this ratio: 30% for necessities (such as gas); 20% for housing; 10% for medical care; 10% for utilities and phone bill; 5% for entertainment and 25% for savings/emergency fund. Whatever you do decide, make sure you've got enough to cover all your necessities first.
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Examine Your Spending
Adam Wood, co-founder of Revenue Geeks said, “A good budget begins with a thorough examination of your spending and income…You should start by evaluating how much you spend in a typical month using bank account and credit card statements, then comparing that to how much you actually bring home.” If your income is less than your expenditures, look for where you can make cuts.
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Look For Jobs in Areas With Low Living Costs
When looking for a job, Johnson recommends looking for those in areas with low living costs, which can also mean remote work. “You can also partner with other remote workers to live somewhere less expensive than the main market,” he said.
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See If You Qualify For Affordable Housing
Additionally, see if you qualify for a budget apartment or special housing counseling through the U.S. Department of Housing and Urban Development, said Hemal Patel, founder and writer at Personal Finance Gold. This could save you a ton of money on a major expense.
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Open a Savings Account
According to McCullen, “Opening a savings account is a critical step in your journey to financial independence.” She recommends setting up recurring automatic transfers to “pay yourself first” before taking on monthly discretionary expenses.
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Create a Savings Mindset
Rick Munster, a certified HUD counselor, recommends that young adults should save money from every paycheck not only for the practical side of things but because “getting into the habit of savings is crucial to long-term financial success. Equally as important is developing the ability to not touch the savings unless absolutely necessary.”
Money you put away when you're young will be an important buffer in years to come.
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Avoid Debt
One of the hardest financial lessons for young adults to learn, said Amy Shunick, corporate financial controller for BPKC, is learning to avoid debt. “The first step is to avoid signing up for credit cards with hefty annual fees or high APR.” A card without fees can be good to build credit and cover bills between paychecks, she said.
Additionally, said Scott Nelson, CEO of MoneyNerd Ltd., young people should avoid taking out loans or using credit that can’t be paid back. “Keep credit utilization down and always make payments on time and always look to improve your financial education,” he said.
Read: 30 Ways To Dig Yourself Out of Debt
Get a Side Hustle
If your main job just isn’t bringing in enough income, Shunick encourages young adults to look for side hustles such as virtual assistant or transcriptionist. Jobs that are “perfect for college students looking to cover bills between classes and don’t require prior experience.” Arts students can sign up for freelance services such as Fiverr “to offer writing, photography, or even design services,” she said.
Other side hustles include driving for Uber, delivering meals or using Amazon Flex to deliver products, said Tanya Zhang, co-founder of Nimble Made. “You may also explore doing transcription work, babysitting, walking dogs, giving fitness classes, or even teaching kids yoga as a side income.”
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Stretch Your Dollar
Once you’ve gotten the hang of budgeting, you should become good at assessing how much money you really have to spend on things. But you can always look for deals, coupons and other ways to save money, said Andrea Woroch, consumer finance expert. “Think about how you can stretch your dollars further. For instance always look for used options first when it comes to things like cars, furniture, clothing and sporting goods.” She also recommends using coupons and looking for deals wherever you can find them.
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Don’t Compare
Brian Walsh, CFP and manager of financial planning at SoFi, recommends that you try not to compare your lifestyle to others. “Studies have shown that social media leads to comparing your lifestyle to others and increases the likelihood of spending more to avoid FOMO (fear of missing out).”
Instead, focus on gratitude for what you do have, and plan for ways to improve your financial situation in the future.
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Put Money in a 401(K)
This might not be a tip to help you immediately, but it will really pay off in the long run and help you survive later in life. If your employer offers a 401(K) retirement program, absolutely take advantage of this by contributing something monthly to this account. “The earlier you contribute to a retirement fund, the longer it has to grow with compound interest,” said Erin McCullen, head of deposit products at Bank of America. “Be sure to invest at least enough in your 401K to capitalize on your employer match, which is essentially free money.”
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