Financial independence is a goal many people aim for but each one has its own path leading to it. Some are forced into it at an early age while others take their time. However, a lot of young adults are taking longer to actually be independent when it comes to their finances. This is usually a result of changing times and needs.
In the past, people would move out of the house at 18 years of age and find their way. They would put themselves through school and look for a job to pay for their cost of attendance. This was possible in the past since school fees were not as high as it is now. Washington Post shares that outstanding student loan debt stands at $1.6 trillion. This goes to show how much debt young adults are carrying right out of college.
What is holding them back
School debt is just part of the reason why many young adults take time to reach financial independence. To better understand the situation, it is a good idea to look at some of the most common reasons that hold young adults back from reaching independence when it comes to their finances. Here are some of them worth knowing.
In school longer
Many young adults seem to spend more time in school than ever before and this can push back their quest for financial independence. USA Today shared in an article that only about 19% of students graduate on time. This means a lot of students are spending a long time in college and burning through their college funds and accruing more student loans.
The longer young adults spend time in school, it becomes more expensive paying for the cost of attendance on an extended stay and puts them deeper in debt. This can be because some students do not have a clear path to what they really want in life. They go to college not knowing what it is they really want to lead them to make wrong decisions.
This can lead to changing majors in the middle of college which can force you to stay in school longer than you have planned. If your current school does not offer what you are looking for, you might be forced to change schools. This would definitely make your college life all the more extended that it needs to be.
Getting married late
Financial independence can take time when you marry later in life because you might only have yourself to think about. You might not have any plans for the future and you could be living one day at a time. This can make it a lot more challenging for you to pin down and actually work towards gaining independence in your finances.
It is possible that you have graduated college and currently working your first job but you might have a hard time looking at yourself beyond this point. When you only have yourself to worry, you might tend to take it easy. Having a partner can bring in financial structure and make you better aware of your money management.
Relying on parents longer
There are some young adults who are able to graduate on time and even find a job right out of college but are still having a hard time attaining financial independence because they are reliant on their parent’s support. Some young adults could still be asking for a regular allowance from their parents to help with their bills at home.
How to attain financial independence faster
Now that you have an idea of why some people take a longer time to be independent with their finances, there are a few ways to get around it. If you are in this situation or know someone who is, here are a few ideas to look into.
Find a job to pay the bills
One of the best routes to gaining financial independence is earning your own money and this usually means getting a job to help you pay the bills. This is usually the first thing you look for as soon as you get out of college. Getting that first job helps you meet all your financial obligations and it puts you on the right path.
However, you need to understand that having a job does not assure you that you will be independent of your finances. Earning money also means spending it wisely because you might find yourself in a deeper hole when you start spending more than what you can pay for. Getting a job is a great first step but you need to make sure that you manage your income wisely.
Understand your tolerance for financial risk
If you want to become financially independent, you need to understand that it also involves being prepared for the future. When you start to plan for the future, investments will be a big part of the endeavor and your risk tolerance will play a part in that. This simply means that you need to invest in relation to your risk appetite.
If you do not feel comfortable taking high-returns with high-risk-investment, look at safer options to help you manage your investments. You can split your portfolio in such a way that most of your investments are relatively safe so you can protect your capital. On the other hand, if you are a risk-taker, you can do the opposite and put most of your investments in a high-return yet a high-risk option.
The general idea with investments is to manage your risk with either your age or the amount of returns you have. The older you get or the more money you earn from investments, the more you need to taper down the risk to protect your money. Of course, this is the safe approach with the goal of making sure you get to keep most of the money you have invested in case the market experiences bear months.
Do not stop learning
Never rest on your laurels because there will always be room for improvement. If you think you are already doing good, you may not get better anymore. Financial independence does not come from one good thing but sound money decisions done time and time again. This means being consistent and sticking with your decisions.
Over time, you will make mistakes and the best thing you can do is to try and pick out the lessons from those situations and do better next time. Trying to learn from your mistakes sounds easy enough but it is easier said than done. Much like how you need to be consistent with the good money decisions you make, you also need to be consistent in always looking for the lessons when you are going through a tough time.
Save for your future needs
You need to be independent with your finances now and in the future and one way of doing that is saving for your future. As investments were discussed earlier, this can be used to help you plan for your future. There are a few funds you can look into to help you ensure that you are financially solid in your golden years.
One is your retirement fund where you will use the money you save now to help you maintain your lifestyle when you retire. You also need to save up and strengthen your emergency fund so you can weather unforeseen incidents life throws your way. It will also help if you can put aside a college fund for your kids as it lowers the chance of dipping into your retirement account just to send them to college.
There are a lot of ways to help young adults reach financial independence but all of these take time and commitment. Being independent with your finances is not a one decision thing but more of slowly building up to it to make sure that you get to sustain it for a long time.