When Madison* turned 18, she knew that she wanted to become financially independent from her parents. Strict and controlling, Madison’s parents chose where she went to college, who she spent her time with and when she could use her phone. Once she became a legal adult, Madison realized that the only true leverage they had over her was that they paid her expenses. “Being financially independent meant that I wouldn’t have to be controlled or pressured by my parents,” Madison says. “It meant I could have freedom.”
At the end of her first semester, Madison decided to take a leave of absence from college. She moved in with her older sister, who has two young children, and agreed to help with childcare in exchange for room and board. Opening her own bank account and signing a contract with a cell phone company was hard. Madison required her Social Security card and birth certificate, as well as proof of residence, all of which her parents needed to mail her. It took about six weeks to gather the documentation and sign up for accounts in her own name. Then, Madison got a full-time job in the childcare industry and began saving money while she applied to colleges as an independent adult.
After six months, Madison had about $4,000 in the bank. She had applied to her dream college and received a $25,000-a-year merit scholarship. She was approved for a credit card and was on her way to establishing her own credit score. She felt lucky that she was able to live for free with her sister, even though helping with the kids was hard work.
“It felt great to make my own money,” Madison says.
Her biggest challenge: “Budgeting and managing my money,” she says. “I didn’t really know how credit works, or how to file my taxes.”
Financial Freedom—Whatever Your Age and Stage
There are many reasons why young women want to become financially independent from their parents. Sometimes, it’s to gain freedom from dysfunctional or controlling families. Other times, it’s simply time to leave the nest. One thing’s for certain: Financial independence from parents is increasingly rare for Americans in their 20s. A 2018 Pew Research Center analysis of Census Bureau data found that only 24% of young adults were financially independent by age 22, as opposed to 32% in 1980. Among adults ages 18 to 29, 45% said that they had received some financial assistance from parents.
Your 20s, notes Bobbi Rebell—host of the Money Tips for Financial Grownups podcast and the founder of Grownup Gear—can be your greatest decade, financially speaking. “You can be an adult without being financially responsible for anyone else,” she says. For the decade to be truly wonderful, notes Kimberly Foss, the author of Wealthy by Design: A 5-Step Plan for Financial Security, you need to be the master of your own vessel. “Money can’t make you happy, but it can give you choices,” she says. “If you don’t have money, someone is going to make those choices for you.” Below, Rebell and Foss share their top tips for achieving financial independence.
1
Take Care of the Basics
To be truly financially independent, you’ll need a steady job. It’s also necessary to put bills—such as your cell phone and streaming subscriptions—in your own name. Other important first steps include establishing a budget, applying for a credit card and enrolling in health care under your employer or through healthcare.gov (rather than staying on your parents’ plan, which you are likely eligible for until you are 26). “This means getting honest with yourself about what things will actually cost,” says Rebell.
2
Start Saving
It doesn’t need to be a lot of money; even just $50 a month is enough to establish a savings habit. “Saving is hard, because we live in a consumer culture that tells us—especially women—we have to own, wear and use the right products in order to matter,” says Foss. “But the girls who start saving early are the ones who end up as owners and entrepreneurs, rather than hourly wage employees.”
3
Figure Out Your Priorities
In 2019, 69% of college students graduated with some debt. If you have student debt, you might want to pay it off as quickly as possible. Or perhaps you would like to pay it off slowly so that you can concurrently save for emergencies or for a down payment on a home. “Having clear goals that are central to your passion will give you the determination you need to overcome the inevitable obstacles,” says Foss.
4
Choose Where You Live Carefully
The pandemic completely changed the workplace. According to the “Future of Workforce Pulse Report” by Upwork, an estimated 36.2 million Americans will be working from home by 2025—an 87% increase from pre-pandemic levels. This gives workers more freedom about where they can live. Some young people will choose to live in less expensive American cities where they can afford more space. And some may choose to move in with their parents.
If you choose the latter option, make sure you have an exit strategy. For example, you might set a goal of accruing the money needed for a down payment, after which you’ll move into your own place. “If you don’t grow financially during the time you’re living at home with your family, it’s just wasted years,” Rebell says.
5
Build Your Family of Choice
Not everyone has a family they can lean on. The good thing is that as an adult, you can establish a family of choice that includes friends, neighbors and mentors. This family of choice can provide emotional support—and financial support as well. For example, if your apartment is flooded and you need somewhere safe to stay for a few days. Or, if you have to make a difficult financial decision, “the right mentor can give you valuable, accurate advice,” says Foss.
6
Take the Free Money
According to the Bureau of Labor Statistics, 56% of employers offer 401(k) plans, which is an employer-sponsored pension plan. Often, companies will match your contributions to those plans up to a certain amount of your salary—hence, the “free money.” If you take a job that offers a 401(k) plan, use it, even if retirement is the furthest thing from your mind. If you choose to opt out, your company just keeps the money it might have invested in your retirement.
Due to a little thing called compound interest, the earlier you start investing money, the more it will grow over time. In simpler terms, saving $100 a month in a 401(k) at age 25 will grow to just over $1 million by the time you turn 65—whereas if you begin at 35, the amount will grow only to around $300,000.
7
Consider a Side Hustle
It is notoriously difficult to live on starting salaries. (Take it from six women we recently interviewed.) If you have the time and energy, Rebell recommends taking a side job like babysitting or working at a restaurant on the weekends to pay down student loan debt and establish a savings account.
8
Learn How to Invest
According to one study, women in general invest 40% less than men. “Women actually have the potential to excel as investors, but society tries to tell them that the markets are for the boys,” notes Foss. A 401(k) is a type of investment, so that’s a good starting point if you want to build long-term wealth. If your company doesn’t offer a pension plan, consider a money market account or IRA. Or, if you’d like to try investing in the stock market, consider signing up for a company like Ellevest, which is an investment platform invented by women for women. Another option is to ask a female friend or mentor to recommend a trusted financial advisor who can help you begin the process of creating a portfolio.
“Women typically live longer than men, so they need more in savings and investment to pay for their longer retirements,” says Foss. “The earlier a young woman can start getting serious about saving and investing, the sooner she’ll be in charge of her own fate, financially speaking.”
*Madison’s name has been changed to protect her privacy.
Brienne Walsh is a writer based in Savannah, Ga. She contributes to Forbes, Rangefinder and MarketWatch, among other publications.
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