Without a job that allows them to be self-sufficient, most people cannot reach financial independence. Despite this, young people are taking longer than in the past to reach this milestone.
Case in point, people in their 20s were able to find jobs that made them financially independent forty years ago. Most young adults must wait until their 30th birthday before they can find jobs that allow them to support themselves fully, according to a study by Georgetown University’s Center on Education and the Workforce (CEW).
It is possible to work towards becoming financially independent, even if you are still looking for a job or a self-described broke college student. How? Here are some steps you can take to become more financially independent.
Establish your definition of “financial independence.”
There are different definitions of financial independence for different people, writes Kate Underwood in a previous Due article. People might consider it when they have reached a point where they can comfortably live as they please. As a general rule, financial independence means having enough money that you won’t need to work again in the future.
However, for college students specifically, financial independence could mean:
- After graduation, become a digital nomad and travel around the U.S. in your Instagram-worthy sprinter van.
- Take control of your time by becoming an entrepreneur.
- Fully supporting yourself financially so that you don’t move back home.
Before becoming financially independent as a college student, you have to be clear on what you want.
To begin, take a moment to identify your definition of “financial independence.” Consider the following questions:
- What would I do with a million dollars in the bank?
- Can I afford this lifestyle with the money I have?
Talk to your parents.
I know. Do you really want to talk about money with your parents? I didn’t.
Here’s the thing though. Managing money outside of the classroom is one of the biggest challenges for college students. Though you feel more independent now than ever before, you still rely on outside assistance for financial guidance.
Research from Charles Schwab found that most young adults (69%) believe that their parents are good role models when it comes to financial advice, and they trust them more than banks, online resources, and friends. In addition, most young adults today say they are more likely to discuss money with their parents than sex (67%) or drugs (56%).
As such, your parents are an important source of economic education, regardless of how you feel about it. It’s therefore important to discuss financial responsibility with them.
Some topics you could talk about include:
- Developing your budgeting skills and managing your spending.
- Establishing smart savings habits.
- Keeping your education costs under control and avoiding debt.
- Using a credit card for the first time and building credit.
Overall, the key to a stable financial future is to speak with your parents about money now.
Prepare a monthly budget.
There is no getting around it. Creating a monthly budget is the first step to becoming financially independent.
That’s why when you’re still in college, you should begin budgeting. To begin, track your monthly expenses. After all, when you don’t know where your money is going, it is impossible to set a budget or change spending patterns.
After you have a good idea of what you spend each month, set a simple budget with the goal of saving a certain amount each month. You may find it easier to manage your finances with the help of budgeting apps.
The most important part of budgeting? Making decisions and prioritizing. That means separating wants, like textbooks and groceries, from needs, such as concert tickets and going to the bar. Spending less on wants throughout the year can help you save for larger, more meaningful purchases like an epic summer vacation.
As you get older and have more expenses to pay, such as rent, utilities, insurance, student loans, and car payments, having a budget will be easier.
Look for ways to attend college for free (or at a reduced rate).
Students living on campus at public 4-year in-state institutions typically pay $25,707 per year or $102,828 over four years. It costs $44,014 per year for out-of-state students, which equates to $176,056 over four years. The cost of attending a private, nonprofit university is $54,501 per year or $218,004 over four years.
Finding out how to attend college for free (or at a reduced rate) is essential if you want to become financially independent.
You can save money on college in a variety of ways, but you should start by researching:
- Grants and scholarships. Apply for grants using your FAFSA, or check with your target school’s financial aid office for local scholarships.
- Work-study programs. You can find out whether you are eligible for FWS by completing your FAFSA. Consult your college’s financial aid office if you are.
- Employer tuition assistance programs. There are tuition assistance programs offered by companies such as Starbucks and Target. Even though there might be a catch, it is still worth investigating.
- Community college or trade schools. You don’t have to get a four-year degree from a university to succeed. The cost of education can be kept down by attending community colleges and trade schools. Taking that into account, US students in-state attend a public community college on average for $4,864.
Use credit cards wisely.
Financial independence also comes from wisely using credit cards. In spite of the temptation to purchase now and pay later with a credit card, you may end up paying much more in the long run. You shouldn’t think of credit cards as free money. Credit cards require you to borrow money, which you must repay — often with high-interest rates. Plus, if you don’t make your payments on time, you will be charged late fees.
It may be better to use credit cards instead of cash if you feel confident you can use them responsibly — that means paying off the balance each month It should be noted, however, that not all credit cards are the same. Comparison shopping is an important part of deciding which credit cards to apply for since annual fees, interest rates, and other details need to be considered.
Find a part-time job or side hustle
You may already have a jam-packed college schedule between classes, extracurriculars, and enjoying college life.
However, as a student, you can achieve financial independence by working part-time or starting a side business if you have some spare time, like during summer break.
You could, for example:
- Find out if you qualify for a work-study program on campus.
- Work part-time near campus or on campus.
- Earn money driving for Uber, Lyft, DoorDash, or Instacart.
- Sell used textbooks and other unwanted items like clothing on Facebook Marketplace, eBay, Poshmark, or a local consignment shop.
- Tutor other students in your class.
- Become a freelance writer, graphic designer, or social media manager.
- Dog walk.
You should consider taking up a side gig related to your major or something you enjoy. It will make it easier for you to put in the extra effort.
Build your credit.
By building good credit, you can become financially independent. One of the main benefits of credit cards is their ability to improve your credit rating.
The good news? Students and recent graduates have access to some credit cards designed for them. You may build credit by responsibly using these cards, just as with other credit cards.
Cash-back rewards and other perks are also available with some student credit cards. There are some cards that you can apply for without being a student. For more information about eligibility and benefits, contact your lender.
What’s more, companies that issue credit cards track your history and share it with other lenders and credit card companies. When you are trying to secure a loan at a favorable rate to buy a house or car, you will need a good credit rating.
Download an investing app.
Choosing the best investment apps for beginners will involve a variety of investment options, tracking your stocks as you wish, researching and reading stock news, and growing with your requirements.
In addition to being easy to use, mobile-friendly, and providing useful features, investing apps for beginners should also provide automatic rebalancing or recurring investments.
Why’s that important? As a student, you must start investing now if you want to reach financial independence. In the long run, even ten or twenty dollars can add up to thousands
Plynk, for instance, is an app that assists you in investing and learning as you go. With just $1, you can get started and there’s a $10 signup bonus.
With Plynk, beginners can invest their money in a portfolio of investments. Specifically, Plynk offers stocks, ETFs, mutual funds, and cryptos.
Reduce your spending and save more.
As a student, achieving financial independence depends on this one principle.
You’ll have an advantage over many of your classmates if you’re able to learn it well. Additionally, this is a skill that you’ll use throughout life.
You can spend less and save more in a variety of ways:
- Avoid overspending at the grocery store by sticking to a shopping list.
- For clothes and housewares, visit thrift stores and consignment shops.
- Take advantage of cheaper phone services, like Mint Mobile.
- Check around for cheaper car insurance.
- Make sure you only go out once a week, if not once a month.
Whenever you save one dollar, you’re buying financial freedom for the future you. It is important to remember that even small amounts add up over time.
Don’t forget to pay off your student loans ASAP and on time.
Students who just graduated may delay paying off student loans until they earn more money. It can, however, prove to be a costly mistake.
You’ll pay more interest if you wait too long to repay your student loans. Student loans that are not paid on time or are paid late can negatively impact your credit rating and have serious financial consequences. An example would be being unable to get a home loan or having your wages garnished.
Be sure you understand how your student loans work and how you must repay them. Take a look at the paperwork carefully. A repayment calculator or a loan specialist can help you determine how much to pay back each month. In the long run, you will pay less if you pay more principal each month because you are reducing the balance faster.
It might be a good idea to consolidate and refinance multiple loans if you have them from more than one lender. Make sure you understand the benefits of federal loans before consolidating private and federal loans. Tax deductions may be available for student loan interest if you make less than $60,000 per year.
FAQs
1. What is the minimum amount of money I need to be financially independent?
A person’s individual expenses will determine how much money they need to be financially independent. Compared to New York City, for example, a small town’s cost of living makes it easier to be financially independent. In addition to earning enough to cover your living expenses, you will also need to pay off any debts you have, such as student loans.
2. What are the basic tips for college students regarding their personal finances?
In college, it is essential to take charge of your finances. Finding ways to stay afloat can be found by analyzing your spending habits. These tips will help you manage your personal finances as a student.
Make a budget.
For college students to save and grow their money, budgeting is essential.
The first thing you need to do is create a budget – this is simply an accounting of all of your income and expenses.
Secondly, you need to adhere to your budget each month. Mint and You Need a Budget are two apps that can help you with this.
Over time, small splurges can result in lost opportunities, and small decisions can add up. Budgeting should be done as soon as possible for this reason.
Set up a savings account.
You can start saving at any time. Be sure to include a line for saving in your budget. While you can save for specific things, such as a vacation or a new car, you should also keep an emergency fund handy. Expenses that may arise unexpectedly will be covered by this.
A savings account with no or very minimal fees is the most important thing to look for when considering potential accounts. You may be charged service fees, ATM fees, overdraft fees, and insufficient funds fees by your bank. Choosing a bank that pays a high-interest rate is beneficial if you plan to keep a large amount of cash in your savings account.
Learn about personal finance.
Making informed financial decisions can be challenging for young adults without much experience with personal finance.
Fortunately, there are free finance courses available. Coursera and Udemy offer online courses teaching students how to save and budget, maintain good credit, and plan for their financial futures using popular online learning platforms.
Even some colleges offer free personal finance workshops throughout the year along with their courses on personal finance. The course catalog or financial aid office can provide you with more information.
3. Are there any other sources of financial aid for students?
If you’re facing financial difficulties, don’t be afraid to ask for help. In order to maintain financial security and academic success, students can access a variety of resources.
Resources available on campus.
Check your college’s financial support or assistance programs for students for assistance with housing, food, transportation, or other expenses. Student affairs or financial aid offices at your school can assist you.
Resources from local and state governments.
Students facing financial barriers have access to a variety of resources at the local and state level. Even though these are broader and aimed at a broader audience, they’re still worth taking a look at.
Tracking down the most relevant financial resources may take some time.
You can begin your search by visiting the following sites:
Your creditors.
Let your landlord or bank know your financial situation and explore your options by contacting any company or person you owe money to In some cases, fees can be temporarily waived or payment plans can be set up.
4. Is it possible to be financially independent without a job?
To become financially independent, you will need a job if you did not inherit money. It is possible to live off your investments rather than a salary from a job if you have a high enough salary.
