Financial independence is a tricky concept that can mean different things to different people. For some, being financially independent means not needing to work in order to support their lifestyle, or finally achieving those elusive retirement years. But, the very first step on any journey to financial independence is simple: stepping out on your own and managing your finances completely independent from any partners or caregivers. Hello adulting!
Paying rent, having your own health insurance, or even just balancing your checkbook can be daunting at any age, but especially when you first start to take control of your finances on your own. You’ve made it this far though, and taking those first steps into the world of financial freedom took discipline and planning; Now, it’s time to build off of that momentum! Here are 5 key tips to help you stay focused as you’re just starting out as financially independent.
1. Balance your priorities: Do you have student loans to pay off? Are you thinking of starting a business? Think about what your long-term goals are and measure them against your more short-term expenses. For student loans, make sure you have a repayment plan, and explore your options for refinancing. Don’t forget about other priorities either, like paying down debt or putting money into your savings (Check out these tips to start automating your savings). Know what’s important for you, your financial situation, and your future goals, and make a plan!
2. Always have an emergency fund. Emergency funds give you the peace of mind knowing that you’re protected should your financial situation ever change. Now that you’ve found financial independence, you want to make sure you keep it right? Emergency funds can help you be prepared for the unexpected, like sudden unemployment or unforeseen medical expenses. Experts recommend that you save between 3 to 6 months of your expenses. If you want to learn more about starting an emergency fund, you can find resources here:
3. Budget, budget, budget! Once you’ve established what your goals and priorities are, it’s time to develop a budget. Remember, the more money you can save, the better! Try the 50/30/20 rule: Allocate 50% of your budget to things you need, like rent and bill payments, 30% to things you want, like eating out or going on vacation, and 20% to your goals, like paying off debt or building your savings. It’s just a rule of thumb — if you have a lot of debt or you’re looking to really increase your savings early, you might want to consider swapping your plan to 50/20/30 — but a good place to start. For tips on how to build a budget, check out this video: Developing a Budget.
4. Start building credit. Building good credit is essential to your financial future. It can help you qualify for loans or unlock possibilities like lower interest rates. And, the longer your credit history, the better. So start early! If you can start building credit while you’re still in school, go for it, but make sure you have a realistic budget and steady income in place to help counter any emergencies that might cause you to miss a payment and hurt your credit score. (See above, about emergency funds!) Don’t load up on debt, just to build credit. Watch this video to find out more about using your credit wisely: Using Credit Wisely.
5. Remember that financial independence doesn’t mean you can never share expenses. Sometimes it just makes sense to share a cell phone plan with the rest of the fam, or to split the cost of a subscription service with your partner. Don’t stress! Leading a healthy financial lifestyle doesn’t mean you always have to go it alone.