Becoming financially independent can be challenging for most young people; it’s a time when you don’t have much formal work experience to bargain with and not a big enough professional network to tap into. That said, young people also have the advantage of time and the ability to take on more risk. To help you gain financial freedom early, here are seven tips to get you started:
Live Beneath Your Means
Spending more than what you earn is the easiest recipe for financial disaster. You want to make sure your expenses do not exceed your earnings. If you are bringing in $5,000 per month, it will not make sense to rent a $4,000 apartment in a posh part of the city. If your budget for food is $400 per month, it won’t make sense to order in sushi every weekend. Only loosen your spending when your earnings increase.
Socialize in Moderation
For young people, a huge portion of their life revolves around their social circle. And while it is definitely good to socialize and keep a consistent group of friends, it’s best to stick with people who share the same values and goals that you have when it comes to their finances. If your friends keep pulling you into any and every social event that comes their way, you’ll be spending most of your limited funds on concert tickets, club drinks, and fancy food.
The only time you should apply for a line of credit is when you are building your credit profile. Apply for a credit card, either from a retail store or a bank, to initiate your credit history. Having a credit score is important since it is the first thing that your landlord, bank, car dealership, and any other vendor will look at before they do business with you. Pay off the balance on your card/s in advance to avoid any interest or late fees. You should also avoid any type of loan unless you are using the money to build a business or finance a smart investment, such as a house.
Have a Fallback Plan
This should primarily be in the form of a savings account dedicated especially to financial emergencies. According to experts, young adults should allocate 10% of their earnings to savings. This financial safety net will help cushion the blow of any unexpected costs that come your way such as medical bills or bailout money for a family member. You should also have a fallback plan for debt. When you do accumulate debt and start to fall behind on payments, consider debt settlement pros and cons from a platform, like Alleviate Financial.
Get a Roommate
Many young people can’t wait to move out of their parents’ home, and most see it as the first official step towards financial independence. Unfortunately, the harsh reality of it is that most housing options are financially out of reach for young adults, especially if you are trying to move into a major city. Apartment prices in cities, like New York, San Francisco, and Seattle have been steadily rising over the past two decades, brought in part by tech companies setting up shop in these areas and paying above-average salaries. Getting a roommate splits the cost of rent in half, as well as the cost of utilities, internet, etcetera.
Explore Passive Income Sources
Passive income is income that you earn with minimal time and effort spent on it. A classic example of this is dividend-yield stocks or stocks that pay a quarterly or annual dividend yield. Tap into your savings account and invest a portion of it into the financial markets. Construct a portfolio of low-risk, low-maintenance stocks that you can buy and hold for the long-term.
Build a Business
As mentioned earlier, younger people can afford to take on more risk. And there is perhaps nothing riskier than starting a commercial venture. Determine what business you’d be good at and would enjoy doing, i.e. freelance writing, web development services, consulting, arts and crafts, dropshipping, and pursue it.
Achieving financial independence isn’t something that happens overnight, or even after years for that matter. You’ll have to consistently and deliberately work on saving money, investing, and minimizing debt. To make sure you stay on track, don’t forget to reward yourself every time you hit a financial milestone.