We all want to be financially independent after graduating from college. This is our chance to prove to the world and our parents that we are adults and we can take care of ourselves. It is the perfect time to start building our lives and make it go where we want it to.
This is the reason why everyone encourages us to practice the right habits while we are still studying. Whatever we do while we are in college, even if it is fully financed by our parents, will have an effect on our lives after. If you allow yourself to get used to living off your parents, it will be harder for you to find financial independence. You will fail to develop the habits that will make you a great manager of your money.
If you learned how to manage your finances while you are still in college, you have a better chance of making the right financial choices from the very beginning. You would have gone through college with a stronger and more secure financial position. When that happens you can afford to be financially independent right after you graduate.
Unfortunately, a rising number of college grads failed to develop the right financial habits while they were in school. According to a survey, there is an increase in college grads living with their parents – up from 19% in 2005 to 28% in 2016. That means their financial position is not strong enough for them to be able to afford moving out of their parent’s home.
Why is it hard to be financially independent for college grads?
But why are these college grads unable to leave their parents? With their degree, it should be easier for them to get a job and live on their own, right? After all, that is why they got a higher education in the first place. They want to be financially independent once they get their degree.
While that is the ideal situation, there are a couple realities that college graduates are faced with. Here are three realities that make it hard for them to achieve financial independence.
Cost to live on your own
First of all, living on your own will cost a lot of money. Statistics reveal that renting is a lot higher now compared to decades ago. The inflation-adjusted rent has grown by 64% while the income is only 18%. If you want to move out, you would be forced to look for a place that you can rent to live in. For some people, they opt to live with a roommate. Others move in with their special someone. Sharing the cost seems like a great way to be financially independent of your parents without breaking the bank in the process. However, not everyone is lucky enough to find someone to live with. If they cannot afford to pay for the rent on their own, they have no choice but to continue living with their parents.
Another situation that poses a challenge for recent college graduates is the job market. With all the advancements that come with time, job opportunities for millennials today is quite different compared with the past. In fact, AOL shares that baby boomers had 20% more in average salary when they graduated college compared to millennials today. You would think that the digital age would help create more jobs. While it helps in some way, it makes the job market very competitive.
The truth is, the unemployment rate has remained constant for a couple of months at 4.1% until it went down to 3.9% in April this year. This means more people have jobs but it seems like it is not enough to sustain a comfortable lifestyle for young adults. With the inflation rate rising faster than the income, people are feeling their limited finances really bad.
This is probably the biggest hurdle – student loans. A lot of graduates cannot afford to get a higher education unless they borrow the money to pay for it. This is probably why a lot of them are reluctant to leave their parents. They know that they have to conserve their finances and that prompts them to save on rent. If they cannot get someone to live with them, they opt to stay with their parents instead. The money they save from paying rent can be used to aggressively pay back their student loans.
Tips to gain financial independence
Now that we know what keeps college grads from their full potential, it is time to work on how to be financially independent. Fortunately, there are a couple of things that you can do in order for you to achieve a stronger financial position despite all the issues with your finances.
Keep living like a student
First of all, you need to keep on living like a student. This means living with a roommate and living on a tight budget. Even if you have started earning, do not give your lifestyle an upgrade. Whatever extra you get from your job should either be saved or used to pay off your debts. Keep your spending low because the extra money that you will get can help you start to improve your finances. Apart from your savings or debt, you can also use it to invest. That way, your money can earn you extra money through compound interest.
Live somewhere cheaper
This may not be applicable to everyone but do not forget that it can be a great option if you have limited financial resources. After all, you are in a great position to start a new life. If your job will allow it, live somewhere cheaper. It can be a cheaper part of the state so you can keep your job. Or maybe you can have yourself relocated somewhere else. This will really depend on your current employer. Obviously, you cannot drop everything but if you have a chance to live in a state that will allow you to live below your means, then that is what you should opt for.
Be smart with debt
Another thing that can help you be financially independent is by being smart with your debt. If you graduated with student loans, you need to have a plan to pay it back. There are so many options to pay your student loans and some of them will help you save a lot of money. You might even find a plan that will result in having some of your debt forgiven.
As you try to achieve financial independence, it is important for you to learn how to manage debt. Do not stop using it – but you have to learn how to use it wisely. Keep using your credit card but make sure you can pay it back in full. Apply for a personal loan but have a debt payment plan ready to pay it back. If you do not know how to manage debt properly, then do not borrow money.
Improve your credit score
Finally, if you really want to be financially independent after college, you have to improve your credit score. We mentioned that you need to keep using debt. Your credit score is the reason for this. Having a good score will help open a lot of opportunities for you. It will help you get a low-interest rate on your mortgage – should you decide to buy your own house. It can also help you get fast approval for any loan. If you have a high-interest rate, you can use the good credit score to negotiate for a lower rate. If you had been paying your dues well, they might relent and lower your rates.