A young person reaching financial independence is a huge milestone in their journey towards adulthood. It’s important that young adults are supported through this time and are equipped with the tools to navigate the challenges that come with it.
Having the skills to support themselves has many benefits including increased mental health and wellbeing, positive impact on family relationships and greater self-esteem.
In England and Wales there are 3.8 million adult children living with their parents, over 13% more than a decade ago. This suggests there are increasing challenges around the ability to become financially independent.
Inflation
High inflation has seen costs skyrocket, making bills and everyday purchases more expensive. For a young person just starting out, rising costs can hinder plans to become financially independent, especially as they’re likely to be on a lower salary.
Market volatility
Uncertain economic times means few employment opportunities and reduced access to mortgage and loan deals.
Housing costs
As well as high rental costs, getting on the property ladder is becoming increasingly difficult for young people. With high interest rates and limited mortgage products, buying a home is out of reach for many.
Lack of financial education
Many are simply unsure what they should be doing with their money, especially when it comes to budgeting, saving and investing.
Setting unclear or unrealistic financial goals
Not having clear financial goals can be a challenge. Having unrealistic goals is also detrimental to achieving financial independence and can make objectives seem completely out of reach.
So, what can be done to navigate these challenges?
Eliminate debt
This is the first step to manging finances. High interest debt should be paid off first before thinking about saving or creating bigger money goals. It’s important to have a clear monthly budget that tracks incomings and outgoings before making a plan to clear any debt. This also includes paying off any credit cards.
Improve credit score
For young people, it’s important to build a credit score to be able to achieve money goals in the future. It can help with aspects such as buying a house or taking a loan out for a car.
Create an emergency fund
Before saving for larger purchases, everyone should have an emergency fund that’s set aside in case of any house repairs, bills or car maintenance issues.
Savings
Once a separate rainy-day fund has been created, it’s a good idea for young adults to start putting a set amount away each month to build up savings. This can help in achieving financial independence.
Review finances
It’s vital to continually review and re-budget, especially if anything changes. This includes getting a pay rise, experiencing increasing costs and lifestyle factors.
Finally, by making and sticking to a sensible financial plan, and with adult support, the challenges that come with financial independence can be navigated more easily.
