Graduating from the Bank of Mom & Dad is not so easy for some millennials.
A survey from The Ascent by Motley Fool found that only 37 percent of millennials are financially independent of their parents. Among those, only 56 percent feel prepared to handle their own finances.
“When you dig deeper, we found that 72 percent of millennials actually want their parents to stop paying for things as soon as possible,” says Nathan Hamilton, director and industry analyst at The Ascent by Motley Fool. "It’s more a matter of survival than what some might call laziness.”
Millennials will likely face eight key money milestones in their road to financial independence. Hamilton has tips on how they can navigate those events.
Finding a job
A student’s first job out of college is often not the perfect one. Hamilton says millennials should look at how their first job can help them secure financial independence immediately or down the road.
“$40,000 to $45,000 is the salary range where most millennials and students are earning financial independence from their parents,” he says.
Paying student loan debt
Hamilton says students should tackle their student loan debt sooner rather than later, preferably their senior year in college, not once the payments kick in.
“Estimating your income for your job prospects will be an early first step,” he says. “Taking advantage of income-based repayment plans is also a good first step because it helps you figure out a budget where you can save, cover your routine bills like a mortgage or rent and pay your student loan debt at the same time."
Hamilton says millennials should review their checking account and credit card statements regularly. They also need to identify the difference between wants and needs and be conscious of spending habits going forward.
“While you will fall off the wagon from time to time and not always keep wasteful spending in check, it’s OK,” he says. “A lot of times people beat themselves up over one bad month. The simple act of focusing on wasteful spending will curtail those bad habits.”
Getting an apartment/house
Millennials need to factor in the total cost of housing in their budgets. That includes rent/mortgage, utilities and other housing-related expenses. Hamilton says millennials should aim for the total cost to add up to about one-third of their gross income.
“Hitting that mark, either below one-third of your income or at that point will set you up to be able to build an emergency fund, to cover your routine housing costs and to be able to invest some of your money early on,” he says.
Getting health insurance
Millennials will likely have two options when it comes to jumping off of their parents’ insurance. Those with a job can use their employer-provided plan. The other option is for them to shop the marketplace for coverage on their own. Hamilton says it’s best for millennials to review both options.
“If you look at the income typically associated with your first job, average millennials are earning $36,000,” he says. “There are instances where marketplace coverage may be subsidized to actually reduce your monthly payment to inline or maybe better than what you’d pay for similar employer coverage. That won’t be the case as your income grows.”
Hamilton says no matter what option is chosen, it is important not to skimp on coverage.
Saving for emergencies
Make paying yourself first habitual. Hamilton says while many Americans aren’t taking that advice, he says following that rule can help you reach your savings goals quicker.
“Not only is it important that are making it habitual and taking a certain percentage out of your paycheck every month, make sure your money is actually working for you in the right account,” he says.
Hamilton recommends putting money into a high yield savings account, instead of a traditional savings account.
“Many of these newer breeds of online banks are able to cut out the brick-and-mortar costs of what a national bank would have,” he says. “Many times, the yields are 25 times greater than the national average and you are paying $0 in monthly fees.”
Saving for retirement
Paying yourself first should also apply to retirement. Hamilton suggests millennials save 10 percent of their income.
“While it does sound young, you are actually never going to enjoy the compounding returns that you can at that age,” he says. “If you look at it in terms of the numbers, every $1,000 you set aside early on, can be worth as much as $38,000 when you retire in 40 years. If you wait 10 years, it plunges to about $15,000."
Hamilton says parents who want their children to graduate from the Bank of Mom & Dad need to be active financial mentors. The Ascent by The Motley Fool survey found that only 22 percent of parents are challenging their kids to be financially independent.
“Parents being a little less lenient, challenging their children to get off the financial dripline and being a mentor to their children can generate some pretty good outcomes,” he says. “For millennials who consider themselves financially independent, they actually view themselves as more mature as well. Those two combinations of parenting and challenging their children can actually lead to that success sooner.”
Linda Bell joined FOX Business Network (FBN) in 2014 as an assignment editor. She is an award-winning writer of business and financial content. You can follow her on Twitter @lindanbell