Young people are often keen to break away and get financially independent, but in doing so there are many financial responsibilities & challenges they might have to deal with.
With student loans and overdrafts taking years to pay off, just how long can young people realistically keep milking the Bank of Mum and Dad?
Signs that you might be ready for financial independence
Sometimes it’s just about being able to rein yourself in when you really, really want to splash out on something you don’t need and can’t really afford, like a luxury item you know you can do without, or a pretty framed picture you’ll have forgotten about minutes after you’ve left the shop.
And then there’s the realisation that sometimes you might have to spend money on something we need, but don’t really want, like household repairs.
If you’ve moved out, then facing regular fixed costs such as rental, travel costs, household bills plus buying your own food can be a challenge. The discipline and planning needed to pay bills on time and in full if possible – including credit – is a challenge too.
That can make it even more of a pleasant surprise on the occasions when you’ve got enough left over for something you need AND want, like a new car or a holiday. Saving for something big, such as a house or wedding, can often help you focus on managing your finances well.
Getting your head around how much you have coming in each month, against how much you need to spend on essentials, can be a real sign of financial adulthood.
Things that could boost your financial future
Paying your credit bills on time – which isn’t just mortgages and loans but can also be mobile contracts, utilities and credit cards – is one of the most important things you can do. Missed or late payments stay on your credit report for at least six years, and could affect your chances of getting credit in the future.
It’s also a good idea to register to vote, as being able to vote wouldn’t only give you a political voice, it could also potentially help boost your credit rating. This is because lenders use the electoral register to help confirm who you are and where you live – all you have to do is go to the Gov.co.uk website and follow the simple steps.
Start checking your credit report, and take steps to improve it. On your credit report, lenders can see a personal history of the credit you’ve had and the repayments you’ve made, so making sure it’s accurate and up to date could be a major factor in helping you get credit in the future.
Many young people will live in shared houses, and split utility and other bills. Your credit history can only be linked to other people if you have a financial link with them, so look out for who you have applied for credit together with. Paying the rent together doesn’t count, though you will be linked to people you share with if you put multiple names on a credit agreement or have a joint account.
To build up a good credit history you must make all your payments on time. Once a credit card shows on your credit report, as long as you make payments on time, your credit score should steadily increase. Just don’t go on a shopping spree and go over your overdraft limit, if you have one, and try to keep an eye on what you are spending! Always speak to your bank if you are struggling.