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Financial Skills that Foster Independence |
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Developing sound financial skills is an important part of becoming an independent, self-reliant adult. Effective money management practices allow a person to live comfortably in the present and make informed decisions for the future. No matter what a person's income, learning to manage one's money reduces stress and increases one's options. It also offers a comforting sense of security.
Help your kids become successfully independent by emphasizing the following financial skills.
Help your kids become successfully independent by emphasizing the following financial skills.
Budgeting
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The ability to create and maintain a functional budget is critical to financial success. A sound budget begins with a realistic list of regular expenses and includes allowances for the unexpected. For a budget to be successful there has to be accountability - someone making sure the budget is adhered to. Ideally a person should be accountable to him or herself, but there may need to be oversight of some sort initially.
Saving
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One of the benefits of living with one’s parents is an increased ability to save a portion of your income. Help young adults develop fiscal discipline by teaching them to set a savings goal and work toward it. Savings goals can be short term, such as saving for a new phone or laptop; mid-range, such as saving for a car; or long term, such as saving for a down payment on a house. Ideally, we should all learn to set and achieve goals at each level. In addition to setting savings’ goals, great effort should be made to avoid debt by learning to live within your means.
In helping our adult child transition to independence, we combined budgeting and savings. We helped her create a realistic budget for what life would be like if she were on her own paying rent, utilities, etc. Each pay period she ‘deposited’ money into different categories within her budget that represented these expenses. This allowed her to save up 6-9 months’ worth of money for rent and utilities so that when she moved out, she would have a comfortable cushion and easily be able to pay such things as first and last month’s rent, hook-up fees, and security deposits.
Keeping Track of What You Spend
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Check registers seem to be a thing of the past, but keeping track of your income and expenses is as important as ever. Every dollar should be accounted for. For some reason this concept was baffling to my kids in the beginning. This was not a skill that came naturally for them, and some even resisted (or were just plain lazy about it).
Fortunately, there are numerous resources available to assist with personal accounting. This article from Forbes identifies 12 Free Apps To Track Your Spending And How To Pick The Best One For You.
Fortunately, there are numerous resources available to assist with personal accounting. This article from Forbes identifies 12 Free Apps To Track Your Spending And How To Pick The Best One For You.
Paying Bills
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Learning to pay bills is an important financial skill for functioning in the adult world. There are two key factors to keep in mind when teaching someone about paying bills. The first is to develop a system for remembering when to pay bills so that nothing gets overlooked. This can be as simple as setting up monthly reminders in one’s phone or scheduling automatic bill pay.
The second important financial skill to learn is to keep track of when and how each payment is made. When paying bills online, most companies provide a payment confirmation number (this is also true for bank deposits and transfers). It’s a good idea to record the confirmation number next to the payment information in whatever format you use to track income and expenses.
The second important financial skill to learn is to keep track of when and how each payment is made. When paying bills online, most companies provide a payment confirmation number (this is also true for bank deposits and transfers). It’s a good idea to record the confirmation number next to the payment information in whatever format you use to track income and expenses.
Understanding Credit and Learning to Use it Wisely
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Many a young adult has gotten into financial difficulty involving credit. Helping an adult child transition to independence should most certainly involve a candid discussion of this important topic. The discussion should include the responsible use of credit, how interest works, and the importance of staying out of debt (particularly for non-essential, consumer purchases). For insight into what to focus on, see How to Teach Your Children About Dept. Don't let the title discourage you; the financial skills emphasized in this article are important for children of all ages to understand and master.
Practicing Frugality
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Teaching practical ways to practice frugality will go a long way toward helping an adult child transition to life on their own. Frugality is all about getting the most for your money, and it encompasses a wide range of skills. These include taking care of what you own, making things last, avoiding waste, controlling impulse buying, comparing prices and shopping for the best deals.
Putting it all Together
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The process of helping an adult child transition to complete self-reliance can begin at any age. While younger is obviously better, it's never too late to start. A young adult who has mastered the skills and abilities discussed here will be well on his or her way to successfully living a life of independence.
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Recommended Reading
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