Financial independence seems like an exciting term for a lot of college students. After all, those who are about to graduate have the option to pursue their independence by moving on to build a life that is separate from their folks. However, given the financial situation of college students and how they are burdened with student loans, a lot of them have decided to move back in.
According to an article published on Time.com, the biggest worry that college kids face today is money. The study was done by Ohio State University and it revealed that 7 out of 10 students feel stressed about their finances. If they are worried about their finances and they fail to deal with that situation the right way, it could destroy their financial confidence. It may be premature to assume but having a bad financial experience could traumatize these students can make them apprehensive about being financially independent when they graduate. This is especially true if they are not confident about their job prospects. They might decide to delay their independence and move back home.
Clearly, there is nothing wrong with moving in with your parents. There are actually a lot of benefits because it will allow you to strengthen your finances without giving up on a lot of comforts. Of course, you are still going to pitch in and contribute at home. But the expenses will not be a great as when you live on your own. That means you have more extra money and you are free to decide how you will spend it. You can choose to make bigger payments towards your debts or you can use it to build up a sizable emergency fund.
While living with your folks definitely has a lot of benefits, that does not mean you will stay there forever. You have to move out sometime and establish your financial independence.
To avoid confusion, the independence that we are referring to is the one that means college graduates will be financially independent of their folks. They will not rely on their parents to provide for their needs. They will finance their own expenses and they should aim to do a good job with it.
A short stint with your folks may prove to be beneficial to your finances but you know that it is only temporary. Sooner or later, you know that you have to move out and declare a complete financial independence. The question is, how can you make it a successful one?
4 rules to be successful at being financially independent
There are 4 different rules that you need to keep in mind.
Set a budget.
Regardless of how old you become, this is a financial habit that you should never live without. Budgeting is the most basic financial tool that you will need to control your finances. In fact, it is believed to be the first step towards financial independence. A budget plan will help you see the relationship between your income and expenses. To be more specific, it will tell you how much money in coming in and where it all goes. In case you suddenly need to spend on something, you know what expenses you can cut back on. It is also helpful when you set financial goals because you have an idea about your financial capabilities.
Keep an eye on your expenses.
The second rule that you may want to follow is to keep an eye out for your expenses. A budget plan will help you do this, but creating a different list for your spending will help you identify trouble areas in your finances. This is especially true when you have a tendency to overspend. While it may be difficult for you to list down everything, it is a necessary task if you want to improve your financial management skills. Sometimes, the problem lies in the small expenses that we make. It is wrong to ignore the small dollar expenses and think of them as insignificant. These usually add up to be a sizable amount at the end of the month. You have to identify these because they can drain your finances and compromise the priority expenses – or even your savings. This is why it is important to develop a habit that will automatically make you question every expense. That is how you become a smart spender.
Save for emergencies.
Contrary to what some people think, debt is not only caused by irresponsible financial behavior. You can still be responsible with all your financial choices and still land in debt if you do not have an emergency fund. Some people live dangerously from paycheck to paycheck and if an expensive unexpected event happens, they can quickly find themselves in the red in their finances. You do not want to go through with that. So just save up for your emergency cash fund so you can be financially secure. Having financial independence and security will give you a great start in your adult life.
Have a strategy for your debts.
The final rule is to have a strategy for your debts. According to the data published on StudentLoanHero.com, the graduates of 2016 can look forward to an average $37,172 in student loan debt. This is an increase of 6% compared to the previous year. This type of debt is notorious for its aggressive collection practices – at least for federal student loans. This is why it is a debt that you do not want to default on. If you also have credit card debts, you have to make sure that you have a strategy to pay it back. If you are serious about your financial independence, you have to make sure it will not be compromised by your debts. So research the best repayment plan that you can use and a debt relief program that will make all the payments easy to manage.
Obviously, there are other tips that will help you strengthen your finances but these 4 rules are the most important ones.
Tips to make your finances stronger and more secure
Managing your finances and making it secure is a never-ending job. Even if you are already financially independent, you have to continue implementing the right habits that can maintain that. Here are some tips that you can use to do this.
Live below your means.
Start by making a commitment to live below your means. This mindset will help you limit your spending so you have extra money at the end of each month. This extra money can be used in different ways. You can choose to boost your savings, make bigger debt payments or even invest.
Use credit wisely.
According to the data published on LendEdu.com, college students have a long way to go when it comes to learning about credit. Their survey revealed that student loan borrowers almost know nothing about student debt. How can they borrow wisely if they know so little about it? What you have to understand is that the use of credit is unavoidable. You need to buy a house – since it is a very big expense to save up for it in cash. In order to be smart about this loan, you need to build up your credit history so you can be deemed a low-risk borrower. This will help you get approval for a low-interest loan in the future. But have that, you need to use credit and you need to pay it back properly. Make sure you know how this is done and how to maintain a great credit report.
Learn how to do things on your own.
Another tip that will help secure your financial independence is to learn how to do things on your own. You are not expected to be a handyman. However, you are expected to learn the basic chores around the house like cooking. A huge expense goes to eating outside so cooking your meals from scratch can help you save a lot.
Set up an automatic savings account.
Some people hesitate when it comes to saving because they are only left with a small amount of money at the end of the month. Well here is a great saving tip to help you save consistently – automate it! Take note that the amount does not have to be big. It can be $50 per paycheck or $100 – if you can afford it. Set it up with your bank so this amount is saved automatically. When it is taken right after your paycheck comes in, you will not really notice that it is gone.
Take advantage of employer-sponsored benefits.
Once you start working, you should also look into the benefits that you will receive from your employer. Sometimes, they offer health insurance, life insurance, retirement plans, etc. You need to take advantage of these. Even if they will not shoulder everything, the deductions from your paycheck will be something that you will not feel anyway.
Choose your friends.
This may not seem like a financial advice but the truth is, your peers and colleagues have a huge influence on the way you spend your money. Sometimes, the spenders can influence the savers – and vice versa. So surround yourself with the people who you know have the financial habits that you want to develop. You can also choose to be with the people who have the same dreams and goals as you. That way, you can compare notes and cheer each other on as you try to reach your goals together.
If you are looking for more tips, here is a video that gives real-life tips about how you can make your financial independence more secure.
