How to Become Financially Independent at a Young Age
If you are a minor seeking to become financially independent as a teenager, you have options.
Financial freedom is possible, and this article will provide tips for how teenagers and young adults can take early steps to become financially independent as soon as possible.
Younger individuals may want to be financially independent of others due to family conflict, unsafe conditions, or being unable to rely on family for financial help. Some parents have been known to dip into their kids’ college funds, savings funds, or gift money. Often it is to cover their own debt, which is understandably concerning to young adults.
Gaining financial freedom at a young age is no easy task, but there are a few basic steps and considerations that can get you on the right track.
You can gain more control of your money, whether you’re an adult or a teen. You should:
- Have a job or multiple jobs, creating a dependable income stream
- Open a bank account that does not require a parent to sign
- Don’t have cosigners on any accounts
- Don’t overdraft or risk the integrity of your account
- Keep bank cards safe from loss, theft, or unauthorized use
You have legal rights regarding your finances, purchases, and debts. These are called “consumer protections” in the legal world.
However, as a minor, you do not have the legal right to control your money. Your parents or guardian control what you own and buy. The exception is money given to you in a legal process, such as in a will or trust.
Emancipation is a legal option where you cut off your parent’s or guardians’ control and act as an adult going forward. This is the only way to take legal control of your money and choices. This is an area of family law, and you would definitely need a family law attorney to help you.
You should research and compare your financial options. It is important to understand:
- How much you can put into a savings account
- Getting a credit card, credit options, and building good credit
- The pros and cons of emancipation
- Savings and financial aid if you want to go to college or trade school
- Monthly budgeting (comparing your monthly expenses to your income)
Once you have money coming in, you need to avoid debt. If you are already in debt, it is wise to eliminate it as soon as possible.
The first step is to stop gathering more debt. This is not always possible if you pay for medical bills, rent, food, and essentials. Cut spending where you can to prevent more debt.
Common options to eliminate debt include:
- Filing for Chapter 7 or Chapter 13 bankruptcy
- Using the “snowball effect” to pay down the largest debts first or debts with the highest interest rates (once one is paid off, you can start on the next debt)
- Reduce all extra spending
- Make extra debt payments and request they go to the principal cost (most companies make you pay off the growing interest first)
- Negotiate with creditors for a lower interest rate on the debt
- Consider a side job or extra hours to earn more to pay off debt
- Negotiate a settlement with your creditors (they will get less money overall but they will get the money faster, so some may agree to this method)
- Attend a credit counseling class
To start a budget, you need to add up the money you make each month. It is ideal to look at your after-tax income to get an accurate idea of your take-home pay.
Once you have an after-tax amount you can predict each month, start subtracting money for essentials such as:
- Rent or housing
- Internet or phone charges
- Car payments
- Car insurance, gas, and repairs
- Food, clothing, and school costs
- Health insurance
- Medication or medical bills
See what amount of money you have left. Some people might be breaking even just with the essentials. If you have money left over, consider whether you are spending or saving.
It is important to review if you:
- Can and need to save money
- Are overspending on food, entertainment, or shopping
- Are spending more money than you make
- Are staying on track for future goals (such as college)
- Need to be mindful of risky spending areas (such as clothes or going out to eat)
It can help to focus on having specific short- and long-term goals. This can make a budget (and more expensive future goals) feel more achievable. It is important to consider your unique circumstances; what works for a friend may not work for your situation.
You might find yourself “spending to save.” A good example of this is paying for health insurance to prevent future medical debt. Establishing good financial habits early can help you stay out of debt and maintain financial freedom over your lifetime.
Underage individuals do not have much control over their financial resources. Financial autonomy is also difficult to achieve for anyone, but can especially be difficult for young adults.
You can contact an attorney to help you with:
- Emancipation from parents or guardians
- Filing for bankruptcy or stopping debt collector harassment
- Understanding your consumer and debt rights
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