Personal Finance

How to Break Up With Your Parents Financially

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A 2018 study found that only 24% of young adults are financially independent by age 22 – in 1980, that number was 32%. Establishing financial independence can help give you more control over your life and set up your future for success. Here are four steps we recommend for young adults who want to take control of their finances.

Step 1: Establish your credit score.

Building your credit may not be the first thing that comes to mind as you become an adult, yet it’s an essential part of growing up.

A healthy credit score is your ticket to accessing better housing, loans, credit cards, insurance rates, and more. If you plan on renting your own apartment, a certain credit score may be required. Even if living on your own is years away, it’s still a good idea to start building credit now so that you won’t be limited when you’re earning a living wage.

There are multiple ways to build credit, including taking out a loan (student loans count!) or getting a credit card. As soon as you turn 18, you are eligible to apply for a credit card. Make sure to do your research. Depending on your situation, you may not be eligible for certain credit cards, and you’ll want to avoid annual fees and other sneaky charges. Whether you build credit through credit cards or loans, try to pay on time – and with credit cards, in full. This will boost your score over time.

Step 2: Create a plan for your student loans.

If you’re paying your own way through school, you’re likely taking out a student loan. Many students opt to apply for federal loans, but there are scenarios where a private loan or a combination of both may better suit your needs. Start with the Free Application for Federal Student Aid (FAFSA) .

One of the most stressful parts of student loans is setting up your payment plan. Typically, payments don’t start until after you graduate. In the meantime, learn your lender’s policy on loan terms, late payments, interest, and payment assistance. Calculate how much you owe in total, then look at how much you can afford to pay each month. This will help you choose your loan term. You should also be looking at your loans’ interest rates. When you begin paying, prioritize payments with the highest interest rates first. This will save you money in the long run.

There are students who choose to make interest payments while still in school. If you’re concerned about the interest you’re accruing on your loan while you study, this can help to lower costs in the future. However, this option is only viable if you have enough disposable income to do so. Don’t let student loans overwhelm you – many wait until they have a full-time job after college to begin making payments. Make sure you take a hard look at all your options.

Step 3: Open a high-yield savings account.

Generally, it’s a good idea to put money into a savings account that pays you interest. You’ll want to have funds reserved for weekly expenses plus emergencies or a rainy day. It’s even better if you put those funds into a high-yield savings account . The high interest may allow you to build up a nest egg over time.

Let’s say Hannah has $1,000 in savings, and she puts it into a high-yield savings account that offers 0.61% annual percentage yield (APY), compounded daily. Then, she makes monthly deposits of $20. Within 12 months, Hannah will have a balance of $1,246.85.

Shop around to find an account that best suits your needs. If you’re unsure, try helpful tools such as an APY calculator to see what different yields will earn you. Look out for accounts that have hidden fees, such as monthly maintenance or minimum balance fees. When you’re ready to open your first bank account, make sure to read up on protecting yourself from identity theft, fraud, stolen cards, and more. Knowledge is power – so take advantage of the resources around you.

Part of being an adult means coping with life’s unexpected challenges, and it’s best to be prepared. Experts recommend keeping at least three months of expenses in your emergency fund so that you have something to fall back on when you need it most.

Step 4: Track your spending.

With financial independence comes financial responsibility. Responsibility with money is a skill developed over time, and it’s important to build smart habits early. A good place to start is by creating a budget and tracking your spending habits.

While setting a budget may feel overwhelming, many helpful tools are available. If budgeting isn’t your strength, try a free online tool that can automatically categorize your spending once you link your bank account. You’ll be able to track your purchasing behavior and make smarter money decisions. For instance, if you have a weak spot for lattes, you’ll be able to set up a specific budget for coffee. You’ll also be able to see when you’ve gone over budget in one area and may need to cut back in others. Plus, if you have an account with Axos Bank, you can link your external accounts to be able to see all your finances in one place.

Independence Takes Time

Striking out on your own can feel scary and intimidating. Independence doesn’t happen overnight, so don’t feel discouraged if you aren’t where you want to be right now. Instead of trying to achieve everything at once, start with small steps, and don’t be afraid to ask for help.

As you work to secure your future, build good habits as you go. That means paying bills on time, building up your savings, and budgeting wisely. If you’re looking for more financial advice as you break out on your own, check out as the Axos Bank blog to learn about everything from auto loans to investing.

How to Break Up With Your Parents Financially

This blog post was published by Axos Bank on May 3rd, 2023, and last updated on May 3rd, 2023.

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