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6 Steps for Declaring Financial Independence From Your Parents

For many people, graduation day symbolizes the start of financial independence from one's parents. They no longer provide a significant income stream for you, so you're left on your own to find work and start paying your own bills.

But for many, it's not the end of that financial relationship. Many parents continue to offer financial support for their children well into adulthood, often providing housing for young adults starting their careers and sometimes even extending that into a stipend that continues well into their adult life.

While this money can be undoubtedly useful for a young adult trying to make ends meet, it also creates a sense of dependence and gives a great deal of power to the parents. If your budget relies on a regular gift from your parents, you are not yet financially independent. You have to rely on their wishes in order to make ends meet.

It's time to declare financial independence from this situation. Here's how, in six easy steps.

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1. Figure out how to live on your own income. For many people, this is the most challenging step, as it usually requires some significant changes in lifestyle.

Yes, you may have to move to a less expensive place.

Yes, you may have to cut back on the services you use (like your gym membership or Netflix or your unlimited data plan).

Yes, you may have to live with driving a used car for a while.

Yes, you may have to start preparing more meals at home and eating out less.

Guess what? That's part of the reality of living with your current income. If you want a different lifestyle, it's up to you to increase your income level. If your budget requires your parents' contribution to make it work, then you're not living within your means.

2. As you're making that change, start saving your parents' money solely to eliminate debts. Instead of using that money to live each month, take the money contributed by your parents and use it to pay down some of your debts. You should strive to make the minimum payments out of your own income, but you should use the money to make a big extra payment on your highest interest debt.

Using this strategy will help your debts melt away rapidly, which will free up more of your income for other things. Plus, you'll no longer be responsible for those minimum payments -- they'll be gone!

3. If you're free from debt, start saving your parents' contribution. If you don't have any debt but are still working on living on just your own income, take the money from your parents and set it aside for the future. Use that money to build an emergency fund, or make Roth IRA contributions for the year.

Doing this means the money will work for you over the long term, but it won't be available to serve as a continued crutch as you learn to live on your own.

4. Once you're able to live without that contribution, talk to your parents. At some point, you'll need to sit down with your parents and talk about this change with them. Being financially independent changes the dynamic of the relationship, meaning that your parents have less power to dictate some elements of your life, but it also means that you have less financial resources each month.

Let your parents know that you no longer need the money they're giving you. This can be a difficult moment for both of you, so do it with respect and maturity.

5. Respect their wishes, but channel them appropriately. Some parents may wish to continue to give you money anyway. If so, use that money for future savings goals. A monthly or annual Roth IRA contribution is perfect for this, as are contributions to a child's 529 college savings fund. The point is to keep that money out of your active budget. Act as if it does not exist, and use it solely for long-term future planning.

Other parents may reduce or stop the contributions -- and that's OK. It's their money, and they deserve the right to use it as they see fit. If you're financially independent, that means you no longer need that money. They're not "cutting you off" -- instead, you're spreading your wings and flying on your own.

6. Take off the training wheels. If you rely on that money in your life in any way, end it now. You should never, ever need to touch that money in order to make ends meet in your day-to-day life. If that money is still coming in, then channel it into something entirely outside of your normal budget.

If life without that money troubles you in any way, then you're still using the training wheels. But once you've removed the training wheels, you're free!

Financial independence means you are in control of your decisions without others guiding the wheel. It's a powerful feeling and a life milestone well worth savoring.

Trent Hamm is the founder of the personal finance website TheSimpleDollar.com, which provides consumers with resources and tools to make informed financial decisions.



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