With a generation stifled by student loan debt, stagnant wages, exorbitant housing prices, and steadily increasing healthcare costs, those of us Millennials or Gen Z often still rely on our parents to subsidize our living expenses.
In fact, according to Merrill Lynch, nearly 80% of parents continue to provide financial support to their adult children. Often, this financial help comes at a sacrifice to their own financial security. The same study found that 75% of parents put their child’s interest ahead of their own retirement needs.
While we may appreciate the help they provide, none of us want to be the source of our family’s financial insecurity. After all, if our parent’s don’t have enough in their retirement nest egg, we will likely be the ones to foot their bills when they age.
Further, cutting financial ties from your parents is one of the first steps in “adulting.” Even if you spent 2022 reliant on money from your mom and/or dad, 2023 can be the year you begin establishing your own financial independence.
Why is establishing financial independence from your parents important?
Ever since you were young, your parents probably provided for you the best they could.
Some of our parents spent countless dollars to ensure we had the best childhood possible. Perhaps, they sacrificed time and money so that you could travel and play with that elite sports team. Maybe, they saved for months to afford that musical instrument and lessons.
It’s hard to understand “unconditional love” unless you have children for yourself. I think we all can agree we would do anything for our kids (or future children) to ensure their success in life.
But…
When does our parents’ involvement cross the line? At what age is it time to cut financial ties so that we can chart our own course?
Every family dynamic is different.
For some of our relationships, we don’t have boundary issues. We’re self-sufficient on our own. Our parents are focusing on their own needs and saving for retirement and legacy giving. We don’t need money from them, and they don’t try and control our lives!
However, some families are still so financially intertwined that neither the parents or grown adult children are able to progress and mature. The parents are still funneling grown children money at their own detriment. The adult children have no incentive or drive to better their own lives or chart their own path. After all, why would anyone work harder with such a cushion and safety net?
To begin establishing financial independence from your parents, you first need to understand their role.
Our parents’ job
Part of being a good parent isn’t necessarily rearing “good kids.”
Sure, we all want our kids to be the best at whatever they do. After all, they’re a reflection of us and our values. However, the responsibility of raising the next generation goes far beyond their grades in school or performance on the field.
Instead, the goal as a parent is to mold a successful adult. Their job is to both provide for our basic needs AND instill in us their values. They teach us character by passing down their wisdom through experience and providing an example of how to navigate through life. Sometimes, they teach us practical skills like changing a tire or balancing a checkbook.
However, when we have finally grown up and left the nest, sometimes our parents can’t quite accept that it’s time to let go.
It’s time to sink or swim
It’s in a parent’s DNA to try and jump in and “save us” rather than letting us learn how to make it on our own.
For example, we may be short on rent one month because of our spending habits or simply not keeping tabs on our finances. If we’re conditioned to call Dad to send money, how will we ever learn the importance of budgeting?
Our parents’ bank account may be convenient and make our lives easy. However, how will we ever learn or do for ourselves with our overprotective or over-involved parents?
While our parents will always be “Mom” and “Dad,” the nature of the relationship changes as we become adults ourselves. Instead of being our providers, they become our advisors.
Part of the maturation process into adulthood involves separation. We can’t become the adult we desire if our parents have undue influence on our lives.
Because finances and money are so personal and emotional, we can’t really develop as an adult if we still have a strong dependence on our parents to pay our bills.
Realize you can’t maintain the lifestyle you had on your parents’ dime
Perhaps, the biggest shift will be a change in your mindset.
More than likely, you’ve grown accustomed to a certain lifestyle that your parents provided. Maybe, your parents met every need and many of your “wants” growing up.
However, as you enter adulthood, you must come to terms that you probably can’t maintain the lifestyle you once lived under your parents financial umbrella. After all, your parents have multiple decades of income under their belt. Presumably, this has allowed them to build some level of wealth while providing for their family.
More than likely, they started out just like you when they first entered the workforce – BROKE! As they earned more income as their career progressed, they increased their lifestyle. By the time you entered your teens and twenties, they were reaching their peak earning years.
Perhaps, this timing gave you a false sense of the kind of lifestyle you’re entitled to!
Adjust your lifestyle to meet YOUR income
Okay… so, we’ve established that you can’t continue living as if your parents’ income is YOUR income.
Simply, there’s only two ways to make your monthly budget work. Either increase your income or decrease your expenses.
If you’re just starting out in your first “adult job,” hopefully, your income will naturally increase as you gain more experience. Perhaps, you’ll need to start a side business or take a second job until your full-time work can sustain the lifestyle you want.
Alternatively, you could create margin in your finances. The best way to immediately achieve greater margin is by reducing expenses.
You’ll need to cut out non-essential lifestyle expenses until you can live on what you earn. This may be easy to do on paper. However, in practice, it’s often hard to give up those luxuries we’ve grown accustomed.
Decrease your housing expense
If you’re like most Americans, your housing expense makes up your largest monthly expense. If you still rely on money from your parents, chances are that you can eliminate the need for their financial support by lowering your rent or mortgage.
Obviously, the easiest way to reduce your housing cost is to share expenses by taking on a roommate.
Not only will a two or three bedroom apartment be significantly cheaper than a similar 1 bed/1 bath unit, you’ll have the added benefit of splitting those extra expenses.
For instance, the average cable bill hovers just over $100 per month. Your electricity bill is probably over $100 as well. Maybe, you and your roommate can even split groceries or take turns driving on your commute into work.
Living on your own is a luxury that’s hard to give up once you’re used to that lifestyle. However, taking on a roommate could easily save you $500/month or more on rent, utilities, and other expenses.
By cutting back on your housing expenses, you can easily gain financial independence from your parents almost immediately.
What if you already own a house?
Owning your home doesn’t preclude you from taking on roommates. In fact, it may be even more advantageous.
If you’re single or even married (if your spouse is in agreement), why not consider house hacking?
By renting out vacant rooms in your home, the rent checks from your roommates will essentially allow you to live for FREE! In fact, you may even generate positive cash flow each and every month after paying the mortgage. Even if you only have roommates for a few years, house hacking could expedite your goal for independence.
Plus, you’ll be using your renters’ rent payments to build equity in an appreciating asset that you own.
You can also consider reducing other expenses that come with home ownership. Install a thermostat that allows you to control your heating and air while you’re away from home. Shop your cable and electricity bill when your contracts expire. Maybe, you can reduce your homeowners insurance by requesting new quotes or bundling with your car insurance. If you’re still paying private mortgage insurance (PMI) on the loan, consider checking to see if you have enough equity (20%) to refinance and remove the PMI.
All of these little expenses can end up saving you hundreds of dollars every month!
Reducing your food and alcohol budget
If you don’t know where most of your money is going, chances are that you are eating and drinking it.
On average, Americans spend around 10% of their disposable income on food and 1% of their gross income on alcohol. However, this is just the average for ALL Americans. Those in the bottom quintile of earners (which is probably where you are if you need financial assistance from parents) spend ~35% of their income on food. A lot of this is because of the baseline amount it costs just to survive. However, you may be able to find more breathing room in your budget by opting to dine in rather than eating out every week.
Trick yourself with games and savings challenges
Make a game out of lowering your cost per meal. If you’re currently averaging $30/day or ~$900/month, see if you can reduce that amount to $15/day or ~$450/month. After all, this works out to only $5/meal for breakfast, lunch, and dinner. You can easily average $5/meal even when eating out once a week. If you’re really serious, you may even be able to reduce your food costs even further. However, you’ll need to find a balance that is right for you.
If you’re currently averaging $30/day or ~$900/month, see if you can reduce that amount to $15/day or ~$450/month. After all, this works out to only $5/meal for breakfast, lunch, and dinner. You can easily average $5/meal even when eating out once a week. If you’re really serious, you may even be able to reduce your food costs even further. However, you’ll need to find a balance that is right for you.
Further, if you find yourself spending a fortune on $15-$20 specialty cocktails on Friday and Saturday nights, see what you can do to lower your alcohol expenditures. Why go through all the effort to cut back on food and housing costs if you’re just going to blow it in one night at the bar?
While the average American only spends $11/week on alcoholic beverages, younger Americans tend to dominate the market for alcohol sales and offset those who drink less.
Instead of going to the bar and paying $5-$6 for a $1.50 beer or $15 for a specialty cocktail, why not opt to drink most of your adult beverages at home? Clearly, this can drastically reduce the overall cost.
With your new found savings, you can slowly get off the parental payroll!
Only buy things YOU can afford
Your mom may drive a slick Mercedes. Your dad may have that fully-loaded Ford Raptor. They may have even bought you a nice ride when you first started driving.
If you’ve been driving your first or second vehicle that they helped you purchase, chances are that you may be due for an upgrade.
More than likely, you’ll be tempted to opt for at least an equivalent vehicle. Maybe, you’ll want an upgrade. After all, don’t you deserve it for all your hard work? Plus, you can easily make the payments by financing your purchase over several years.
Avoid those wealth destroying financial decisions
Often, we pinch our pennies on the little costs and then let all of our sacrifice go to waste in one fail swoop at the dealership.
Don’t let your first, independent financial decision be the purchase an expensive vehicle. If you truly need a newer car, do your best to minimize the cost until you have built substantial wealth.
Do everything in your power to pay cash for your purchase. Keep the total cost of your purchase to less than half of your annual income. This will ensure you maintain control of your income and can absorb the financial hit of depreciation.
After all, you don’t want a car payment to be the cause of why you’re still dependent on your parents.
The numbers explain why buying a vehicle is financially crippling…
While spending money on a vehicle is necessary for most people, locking up a large amount of your net worth in a car is a terrible idea. Vehicles depreciate in value until they are eventually worthless. In fact, vehicles lose 70% of their value in the first 4 years.
It’s virtually impossible to build any kind of wealth if you turn $35,000 to $0 several times over your lifetime. Add in financing costs, and the decision is even more sub-optimal.
Not only do vehicles depreciate in value, there’s also the opportunity cost that comes with payments. The average new car payment in America today is $523/month. If a 25-year old invested that much in the S&P 500 at the historic market return (10%), they’d have nearly $2.8 MILLION when they retire at 65.
Is it okay to buy vehicles? Sure, most of us need a mode of transportation! However, do your best to minimize the expense so you can focus on building wealth. This money can help you cut the financial ties to your parents.
Maybe, your vice isn’t buying cars or trucks…
Homes and cars are by far the most expensive purchases that we make. However, these big items may not be the source of your financial insecurity and reliance on mom and dad.
Sometimes, it’s those ankle-biting $5-$50 recurring charges that keep us from reaching financial security on our own.
Often, our hobbies and habits end up costing us way more than we may realize. Many of us have subscriptions to every service imaginable: Amazon Prime, Netflix, HBO, Showtime, Spotify, Sirius XM, and a gym membership we rarely use. Perhaps, you also have an expensive hobby like golf or shopping.
The list of services we’ve signed up for goes on forever. The activities we enjoy may actually be doing us harm if not done responsibly. In conjunction with our housing cost and car payment, it’s no wonder we need some extra cash from our parents!
As a Millennial, we are notorious for indulging in expensive brunches, avocado toast, and pricey coffees. We love the experiential economy. Most of us value our relationships and seek adventure with the people we care about.
Unfortunately, we spend so much money on “stuff” that isn’t in alignment with our long-term goals or brings us sustainable happiness. It’s hard to enjoy these experiences with our parents breathing over our shoulders.
The key to getting off your parents’ payroll this year!
Getting off your parents’ payroll may not be the easiest path – especially, if you’re just scraping by. In fact, it’ll probably be hard to stop accepting “free money.”
However, you can establish your own financial choices without any strings attached or undue influence from Mom and Dad. If money has been a source of friction in your relationship with your parents, you have the power to make the change.
Live by a budget. Stop wasting money on “stuff” that doesn’t take you closer to your long-term goals. Find ways to earn side income or increase your full-time income. Make sacrifices today for your future so that your parents no longer have to sacrifice their own financial security.
Only you have the power to control your financial destination. By living on a plan based on the lifestyle you can afford, you have the ability to change the direction of your family tree.