52% of young adults aged 18-29 are living with their parents, the highest percentage since the Great Depression1
Stuck living under your parents' roof and still relying on their financial support? You are less alone than you think. Growing up, we all fantasized about the freedom of adulthood, but few of us anticipated the financial roadblocks along the way. More than half of adults aged 18 to 34 are still counting on their parents for financial help. This dynamic isn’t just tough on you—it puts a strain on your parents too, with 36% admitting that supporting their children has taken a toll on their own finances2.
Change is only possible through action, and now is the time to finally work towards this ultimate goal. In this article, we are delving into practical financial habits, saving strategies, and simple lifestyle tweaks that could be the game-changers you need to finally achieve financial independence and step out from under your parents’ roof.
Understanding the Roadblocks Between You and Financial Independence
As we kick off this journey, let's dive into some major factors that might hold you back from fully embodying adulthood. The obvious setbacks include high interest rates and the price surge in housing markets; however, these factors do not make or break financial independence. Let’s dive deeper and shed some light on some neglected financial habits that may be hindering you.
Some common financial challenges include credit card management, savings goals, recurring payments, investments, and budgeting. These probably sound familiar, but what if I told you Instagram can be one of the biggest reasons your finances are not in order. Have you ever scrolled through your feed and seen post after post of your peers flaunting their luxury items? Social media has developed a culture of unachievable lifestyles, and pressures to keep up with the “trendy lifestyle” cause many young adults to develop uncontrollable spending habits just to fit in with their feed.
Ironically, where these spending habits originate, is also where many seek financial advice. A survey conducted by Forbes Advisor found that almost 80% of millennial and Gen Z age groups in America have gotten financial advice from social media3.
However, much of this advice promotes unrealistic "get rich quick" schemes. If you find yourself trapped in this pit influenced by social media, read on to climb back out.
The Climb: How to Manage Finances Effectively for Financial Independence
Forming Good Spending Habits
The first step in developing good financial habits might be surprising: temporarily get rid of your credit cards. Using only a debit card for a few billing cycles shows you how much you can truly afford to spend.
Additionally, set aside 20% of your paycheck into a high-yield savings account. This helps develop the habit of living on 80% of your income and allows you to build up emergency funds or save for big purchases like a house or car. If you are new to saving, having a high annual percentage yield (APY) online savings account could be an option to start with, as they sometimes require no minimum balance and offer APY above the national average, i.e. SoFi or Discover.
Preparing for Independence: Budgeting Life's Essentials
Navigating the world of budgeting can feel overwhelming especially when you're suddenly faced with bills and living costs you've never handled before. From utilities to taxes to entertainment, managing these responsibilities can be challenging.
While still at home, ask your parents about household expenses. Use this knowledge to proactively budget. Set up a savings account with automatic deposits matching those costs each month. By simulating homeowner expenses, you gain financial management experience and grow your savings with interest. When you’re ready to move out, you’ll have a financial cushion to handle unexpected expenses.
Managing Your Recurring Subscriptions
Recurring subscriptions can undermine financial goals. Many subscription services rely on inactive members for revenue. For instance, 60% of Planet Fitness members don’t visit once a month. While most subscriptions cost $5 to $20, they add up. For example, a $10 subscription costs $120 a year. Eight unused subscriptions could waste nearly $1,000 annually.
To manage this, review your bank and credit card statements to identify all subscriptions and their charges. Cancel any unfamiliar or unused ones – these don’t make the list. Total the costs and assess a reasonable budget. Use a dedicated credit card for subscriptions, paying it off fully every month to easily track spending and maintain financial control.
Becoming a Disciplined Investor
Investing is a crucial part of being able to use the money you earn to make even more money, especially starting early. The power of compounding is a tool that many people don’t realize until it is too late. Taking just a few hundred dollars a month and setting it aside can mean hundreds of thousands of dollars down the line, let me explain.
For example, with $250 a month systematic investment in portfolio earning 10%, you would have $179,568 by end of 20 years. Here we use S&P 500 index average return in past 20 years for purpose of illustrating power of compounding4. Indexes are unmanaged and cannot be invested in directly. Investing involves risk, and past performance is no guarantee of future results.
Disciplined investing is a powerful way to grow your wealth, but it requires patience and understanding the market. Stay patient and keep learning—your financial future will thank you for it!
We’ve discussed five small adjustments to financially prepare you for independent living. Use these as a starting point, but also consult with a Certified Financial Planner experienced in assisting young adults as they go throughout various stages in life. They can provide advice based on your unique situation, helping you manage your finances effectively and achieve financial freedom.
Securities offered through Registered Representatives of Cambridge Investment Research Inc., a broker-dealer, member FINRA/SIPC. Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Cambridge and American Financial Alliance, Inc. are not affiliated.
Reference:
1. Pew Research Center. “Americans More Likely to Say It’s a Bad Thing Then a Good Thing That More Young Adult Live With Their Parents”
2. Pew Research Center. “Financial Help And Independence In Young Adulthood”
3. Forbes. “How Social Media Effects Our Financial Health — The Good, Bad, And Ugly
4. https://dqydj.com/sp-500-periodic-reinvestment-calculator-dividends/