How to Become Financially Independent From Your Parents

With planning, discipline, and a few positive money habits, you can build the foundation you need to get (and stay) financially independent from your parents.

The freedom to do what you want, when you want, is exciting, and financial responsibility is often the last thing tying you to parental control. But the idea of doing things like paying your own rent, signing a lease, and managing bills may feel overwhelming. Here are some steps you can take to become financially independent from your parents.

7 Steps to Reach Financial Independence 

Whether you’re recently graduated from high school or college, or just dreaming of a new beginning, the road to financial independence is a journey. The path looks different for everyone, but here are seven steps you can take to set yourself up for long-term financial independence.

Set Up Your Own Bank Account

Having a bank account is key to taking control over your own finances. You’ll need it to pay rent and put utilities in your name, when that time comes. Opening a checking account will enable you to pay bills, and opening a savings account is the first step to putting aside funds to reach longer-term savings goals.

Setting up your own bank accounts (savings and checking) before the end of high school or college and starting by depositing money from family or from a summer job can give you get a head start on reaching financial independence. It’s actually may be easier when you’re living under your parents’ roof to save that money too, since you may have fewer expenses. 

If you are under the age of 18 (or 21, in some states) or your parents want to have some involvement at the start of your financial journey, you can open a custodial account with them. This account is set up and administered by an adult for a minor, and then once the minor turns of age, account management is transferred to them.

Most bank accounts include online and mobile account access so you can monitor your income and expenses. You can also set up automatic payments for recurring bills and account alerts to prevent fraud. Shop around at different banks to find accounts that fit your needs, such as those with no fees and competitive interest rates.

Analyze Your Spending and Create a Budget 

Becoming financially independent from your parents means paying for your own bills including your cell phone or internet services, car insurance, and Netflix, Spotify, or other subscription services you might have. By creating a budget, you can visually confirm that you are not spending more than you earn by focusing on making sure the largest, most important bills are covered first. Otherwise, you could end up in debt or living paycheck to paycheck.

The 50/30/20 rule is one of the easiest frameworks for budgeting, but you can also think of it as a spending plan. You put 50% of your after-tax income toward needs (like rent and bills), 30% toward wants (entertainment, restaurants, etc.) and 20% toward savings and debt repayments. 

Review Health Insurance Options

If you’re on a parent’s health insurance plan, you can stay on that plan until you turn 26 in most cases. While this of course means you are not technically independent of them, it’s a nice perk and benefit that will help you save some funds on necessary health expenses. After you turn 26, you have a few options:  

• Get a job-based health insurance plan through your employer (you may need to pay a share of the cost). 
• Purchase your own plan through the Health Insurance Marketplace at healthcare.gov.
• If you’re a student, you may be able to get affordable basic insurance coverage through the school’s student health plan. You can also enroll in a student health plan through the Health Insurance Marketplace.
• For young adults with low income or other hardships, you may qualify for a discounted plan with Medicaid or a catastrophic plan.

Start an Emergency Fund

An emergency fund is your safety net for those unexpected things in life like car repairs, a medical emergency, or a job loss. A common rule of thumb for emergency funds is to put away enough to cover three to six months of expenses, although the exact amount you will need will depend on your financial situation. So, if your monthly cost for rent, groceries, gas, electricity, and water is $1,000, consider building an emergency fund of between $3,000 and $6,000.

If you have no savings, you can start small, putting aside a little from each paycheck into a high-yield savings account. One way is to aim to save $500 to $1,000 to start, then build up to the amount needed for about three to six months of essential expenses. Having a financial cushion protects you from turning to credit cards or dipping into your savings when an unplanned expense pops up. 

Save for Financial Goals

If you want to move into your own place, buy a car, or pay for college, make it a savings goal. By setting a financial goal, you have something to work toward, which is often a key component of reaching financial success.

For example, let’s say you want to move out of your parents’ home after you graduate college and move into an apartment. You can research rental prices in the area you want to live by looking at rental websites, calling apartment complexes, or talking to a real estate agent. Then, calculate what you might need to pay each month, including costs for security deposit, new furniture, or a moving service.

Once you have a plan of how much you need to save in order to reach your goal, you can create a timeline and work backwards from there. Say you want that apartment in exactly one year. You will need to calculate exactly how much money you need to save, per month, until that deadline.

Build Your Credit

Many milestones in life, such as buying a house or leasing a car, require you to show credit history. If you have a low credit score or nonexistent credit history, you’ll find it harder to get approved. Or, you may have to pay higher interest rates.

The way you establish a history and build your credit score is by using credit responsibly over time. First, get a free credit report, even if you’ve never had a credit card. This report checks with the three major credit bureaus–Experian, Equifax, and TransUnion–to make sure there are no open files using your name and Social Security number. You can check your credit report for free at AnnualCreditReport.com.

Next, make sure your bank account is set up. Then, apply for a student or secured credit card to start building your credit. Use the card for small purchases you can pay off each month. Keep your balances low relative to your credit limits, ideally 30% or less of your limit. And make absolutely sure to pay on time each month—payment history is the biggest factor in your credit score.

Commit to Paying Off Student Debt 

Student loan debt in the United States was $1.6 trillion as of the third quarter of 2023, according to Federal Reserve statistics. If you have student loan debt, or plan to use financial aid to pay for college, you need to also make a plan for repayment.

First, understand the loan obligations before you borrow, including the impact of interest on the final balance. Depending on your repayment plan, it can take between 10 and 30 years on average to pay back your student loans. Here are some tips to tackling student debt:

• Understand your repayment options 
• Use a loan simulator to estimate your future monthly and overall payments 
• See if you’re eligible for scholarships, or grants like Pell and TEACH Grants
• See if you qualify to have your loan canceled, forgiven, or discharged based on your profession or other special circumstances
• Look into whether consolidation can save you money

When to Accept Financial Help

When you’re trying to be financially independent, you may wonder when it’s appropriate to accept monetary help from your parents or someone else. It’s a complex question with many variables. There’s a big difference between sharing your parents’ streaming service membership and accepting a down payment on a house, for example. Here are some questions to consider:

• Is the financial help coming from a trusted source, like a parent or other family member? Or is it from a less reliable source, like a friend or stranger?
• Will accepting help put the other person’s savings, investments, and financial well-being at risk? 
• Will the assistance help your goal of long-term financial independence, or will it put you at risk of dependency on others? 

Before you decide to accept help, make sure the terms are clearly laid out, including whether it’s a loan or a gift. If it’s a loan, be sure to note the amount, time frame to pay back, and at what interest rate, if any. Evaluate whether the terms are competitive and fit your needs, and whether you can realistically pay back the loan in the given timeframe.

The Bottom Line

Becoming financially independent from your parents is a gradual process, and there may be some bumps along the way. With the right planning and some financial education, getting financially free is a realistic goal, even at a young age. Don’t be afraid to take it slowly, taking on more financial responsibility over time.