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Budgeting & Saving

5 Steps to Financial Independence

Your early twenties are an awkward time for just about everybody. Technically, you're an adult—and hopefully learning how to act like one—but you still feel like a kid. That feeling tends to fade away as you get closer to 30, but the first years after graduation are often filled with financial missteps and well-intentioned catastrophes.

One of the best ways to really start feeling like an adult is to assert financial independence from your parents. It's nice to get some financial support in those early years post graduation, but you should be looking to stand on your own two legs as much as possible. Until you do that, you'll always feel like a child impersonating a grownup.

Here are five sure-fire ways to assert your financial independence after graduation.

1. Health Insurance

Since the Affordable Care Act of 2010, adult children have been able to stay on their parent's insurance plans until age 26. That's been a huge boon for a generation affected by the Great Recession, stagnating wages, and high student loan debt.

Unfortunately, staying on your parent's insurance could also increase their monthly premiums. If independence is your goal, reducing financial strain on your parents should also be a priority.

If your current employer doesn't offer a plan or you don't have a job yet, ask your parents how much more they spend to keep you on the plan. Set up a system to pay them that amount every month.

If you can't afford to pay the monthly premium, you should at least cover your personal doctor's visits, medication, and procedures. Yes, medical bills are expensive, but taking on that burden is one of the first steps to becoming financially independent.

2. Car and Renters Insurance

Now that you've dealt with health insurance, it's time to get off mom and dad's car insurance as well. If you want, you can contact their current insurer to see how much it would cost to be on your own plan. Grads who have avoided speeding tickets or accidents can probably find a decent rate by shopping around.

If you're not living at home, you should also sign up for renters insurance. Assuming you're starting to purchase nicer furniture and appliances, renters insurance is the only way to protect those possessions in the event of a burglary. It's also incredibly affordable—between $10 and $20 a month—and you can buy a policy with your car insurance company to earn a multi-line discount.

3. Improve Your Credit Scores

Experian data shows that Gen Z has an average credit score of 634 (based on the VantageScore model), which falls in the "poor" scoring range.

If you have low credit scores, you're less likely to qualify for loans, apartments and even some jobs. A landlord will often require a cosigner before letting you sign a lease with low scores. A cosigner is someone who signs onto a loan or lease with the stipulation that they will be held responsible if the primary signer defaults on the loan or stops paying rent.

If your parents had to cosign for your student loans or a new apartment, be aware that your decisions could affect them. If you destroy your rental and fail to pay for damages, your parents will be hit with the total. If your parents cosigned on your student loans and you default, they'll have to pick up the tab.

Paying bills on time, keeping a low balance on your credit cards and being responsible with money will help increase your credit scores. That way, you won't need your parent's signature the next time you want to sign a lease or take out a loan.

4. Set Up an Emergency Fund

Nothing says "I'm not a grown-up" quite like borrowing money from your parents. It's humiliating to ask for money, especially when you're employed and no longer in school. If you have a tense dynamic with your folks, asking them for money could also seriously strain your relationship.

The best way to declare financial independence is to start an emergency fund for any potential problems that might arise. These could include losing your job, needing to replace the tires on your car, or paying for urgent dental work.

A starter emergency fund should have $1000, which will cover most minor catastrophes. If you have an unstable job or rely on commission, your emergency fund should have three month's worth of expenses. Keep the emergency fund in a savings account where you won't be tempted to spend it for non-emergencies.

5. Get Off the Family Plan

If you've always been on your parent's cell phone plan, now's the time to find your own account or at least start paying your portion. Tell your parents you want to pay your share of the bill, or ask if they want you to get your own plan. In many cases, staying on their plan while paying your portion could actually save everyone a little money.


Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer, or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
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