How to Declare Financial Independence From Your Parents (In 3 Steps)

September 30, 2016

financial independence

Have your parents been helping you with bills for more than three years? Have they been paying for your car insurance ever since you got your license — 10 years ago? Does your mom criticize your credit card spending every month? It’s probably time to declare financial independence.

Why bother becoming financially independent from your parents?

A Sallie Mae poll recently found that 36 percent of parents expect to support their child financially for more than two years after graduation. Another report says that fully 40 percent of millennials receive regular financial assistance from their parents. If everyone you know is getting a little help from their parents, then what’s the big deal? Well…

  • You could be sabotaging your parents’ retirement. “But my parents are doing just fine!” you say. They may be fine now, but do they have enough money to pay for long-term care? An assisted living facility costs, on average, $3,628 per month. Having an in-home healthcare aide costs more than $3,800 per month. That can eat up their savings pretty quickly. And if your parents need financial help, guess who they’ll turn to?
  • You might need your parents’ help for something big. Your parents (probably) have a finite amount of cash they can give you. If it all gets frittered away on small expenses, you may not get any help for big buys like a wedding or a house.
  • Your parents may be using money to control your life. Do your parents criticize your spending habits? Do they threaten to withhold cash because they don’t like who you’re dating, or the design of your new tattoo? Accepting their money only gives them emotional leverage.
  • It’s gotta end sometime. When you’re 43, do you still want Mom paying for your car insurance? Cut the tie before your parents do. Here’s how.

Step 1: Slice all your expenses.

compare car insurance quotes Make a list of all your monthly bills — phone, Internet, cable, gym membership, car insurance, etc. — and add them up. Don’t forget subscription services like Netflix, Amazon Prime and Spotify.

Identify some you can cancel outright. Maybe you can replace the gym with free November Project meetups. Maybe you can ditch cable entirely. And be honest: You don’t really need your monthly Glossybox.

Once you’ve pared down the list, examine each item and look for ways to reduce the amount. An easy way to start is to compare car insurance quotes. Use to run the numbers and save some time. You enter your driving/vehicle information just once and then get a bunch of free quotes from top insurers. You’ll be surprised by how many offers you get when you compare car insurance quotes; many people find out they can save hundreds by switching. To go even lower, you may even want to consider dropping collision coverage.

Can you reduce your total bill load down to an amount you can pay each month without any help? If so, you’ve just taken a huge step toward financial independence from your parents. But don’t turn off the cash faucet yet.

Step 2: Kill your debt with your parents’ help.

It’s not just the bills that are keeping you down, right? It’s the debt. You’ve got to get rid of those credit-card balances before you can be 100 percent financially independent. Here’s a brilliant idea: Start taking the amount your parents give you each month and apply it to your debts. You don’t have to be sneaky about this. It’s perfectly fine to tell your parents what you’re doing, and they’ll probably be happy to help.

Once you’ve eliminated or substantially reduced your debts, take a fresh look at your finances. What’s the bottom line? How much do you actually need to live each month? You need this number for the final step toward financial independence…

Step 3: Fill up two — yes, two — savings funds.

Once you’ve proudly declared financial independence from your parents, the last thing you want to do is go crawling back to them and beg for money. That’s why it’s so important to have two separate savings accounts. The first should be an emergency fund with three to six (ideally six) months of living expenses. So even if you lose your job and your cash flow drops to zero, you’ll be OK for a while.

The second savings account is, as financial columnist Michelle Singletary calls it, a life-happens fund. This is for things that happen unexpectedly, like a big medical bill, a car insurance deductible, a dropped laptop, etc. It’s not for aspirational things, like a vacation or a new car. For those, you should set up a third, separate fund. It’s smart to have at least $1,000 in your life-happens fund, although more never hurts.

Once you’ve done these three things, you’re set! It’s time to declare your financial independence once and for all. Light up a sparkler to celebrate — or maybe just take your parents out for a thank-you dinner.

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