5 tips for achieving financial independence
July 7, 2017
Perhaps more than any other generation in American history, millennials have been scrutinized, stereotyped and maligned.
We’re lazy. We’re arrogant. We’re entitled. Worst of all, in a country that loves self-reliance and self-determination, millennials are moochers off their parents and financially dependent upon them.
In some regards, our unflattering reputation is partially true. According to a new U.S. Census Bureau report published in April called "The Changing Economics and Demographics of Young Adulthood: 1975-2016" about a third of millennials do in fact live with their parents.
Studies show millennials abhor financial dependence too
Guess what? Millennials don’t like financial dependence any more than you do.
When asked to define adulthood in the same study, the majority of millennials said that finishing their education and gaining full-time employment were “extremely important.”
On the other hand, marriage and parenthood, milestones that previous generation rated as necessary to achieving adulthood, were considered “not very important” by most millennials. Not surprisingly, this correlates with the rise in student debt and decline in early-career salaries in the past four decades. Unfortunately, only 28.9 percent of young adults are reaching their goal of financial independence by 21 years of age today.
A Bank of America Better Money Habits study published late last year had similar findings. Forty percent of 18 to 26-year-olds said "financial independence" was the top indication of adulthood. Only 14 percent said “moving out” of their parents’ home. Getting married and starting a family? Just 7 percent.
Incredibly, millennials responding to this survey said people should be able to pay for their own cell phone plan at 18.5, pay for their own car at 20.5, and for their own housing at 22. In all three cases, Baby Boomers — the millennials’ parent generation — felt it should take about a year and a half longer to happen!
Why the gap between aspiration and actuality?
Why is there such a disconnect between aspiration and actuality? I think it’s quite simple. It’s a classic case of desperately wanting what you don’t have — combined with some very sound logic that you should be able to stand on your own two feet before bringing into the world the pitter-patter of additional tiny feet.
5 tips for achieving financial independence
- Turn living at home into a strategic plan, not a fallback plan. Living with your parents is a great way to save money and pay off debt while you work or look for work. If you’re doing that while your parents have the grace and patience to house you, that’s very smart. If you’re not, that’s mooching.
- Define your hard and soft expenses. Hard expenses are those you can’t avoid without badly affecting your life — food, rent or mortgage, utilities, phone, insurance and loan payments. Soft expenses are those which don’t dramatically affect your life. Let’s call them frills: cable, Netflix, expensive coffee drinks, dining out, gifts, unnecessary clothes and gadgets.
- Downsize your life. It doesn’t matter how small you think you’re living, you can live smaller. Cut out the soft expenses, then start trimming the hard ones. Research cheaper phone plans. Move into a smaller apartment or house. Plan your meals and prepare them at home.
- Wage war on your debt. By waging war, I mean be strategic in your attack and, if you have a lot of debt, prepare for a long campaign. Start with your highest-interest debt. Or, if the psychological benefit is helpful, start with the smallest debt.
- Convince yourself that retirement is now. The only way you’ll ever have a retirement that’s free from anxiety and fully of comfort is by starting on it ASAP. The money you have left over after hard necessary expenses should go first to one of three buckets: emergency savings (3 to 6 months of living expenses), debt repayment and funding some sort of investment plan for retirement. You can never get back the time that is absolutely essential to compounding returns.
Jennifer Pagliara is a financial adviser with CapWealth Advisors.
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