Unless you’re careful, mixing family and finances can be a recipe for trouble. For example, lending money to family members is a great way to ruin relationships.
Another challenging area is when your parents find themselves in a financial mess, and you feel compelled to step in and offer guidance. How do you help with a nest egg that got hammered over the past year? What can you do if they have a free-spending lifestyle that’s resulted in a huge amount of debt late in life?
The first step is deciding whether or not to intervene. Once you’ve decided to offer your assistance, here are some tips for helping without creating problems.
Arrange a meeting with a Certified Financial Planner
Hiring a financial planner can be a great stress reliever for both you and your parents. Just be sure it’s a fee-only planner so everyone’s interests are aligned. Involving a CGP can be a great option for a couple of reasons.
First, this is a neutral person to whom your parents can explain their situation in detail. It’s natural for parents to hold back important information from their children for fear of embarrassment or judgement.
Second, by doing some research through the National Association of Personal Financial Advisors, you can find someone with the specific experience your parents need to get back on the right track. Just be sure to talk to them first to make sure they’re right for the situation.
One way of bringing it up would be to mention to your parents that you’re thinking of having an expert take a look at your own finances. You can then give them the name and number of a planner.
How to talk with your parents about their finances
If your parents don’t want to go to financial advisor, but still need help with their finances, you may have to work with them yourself. Here are a few tips for handling what might turn out to be an awkward conversation.
Handle with care
Put yourself in your parents shoes before you say anything. How would you like for this conversation to start if the roles were reversed?
Be realistic with your advice
Don’t assume that your parents will change decades worth of bad habits overnight. Instead, I would recommend focusing on one area at a time.
Prioritize helping with their finances
Depending on how willing they are to accept help, identify the areas in which they are most in need of assistance. Here are some ideas:
- Budgeting. This is a great way to simplify your parents’ life. Show them how to automate their finances and set aside money in their savings account for an emergency fund, vacation, etc.
- Eliminating high interest debt. Work with them to create a debt snowball to reduce and eliminate their credit card or other high interest debt.
- Retirement. If they haven’t yet reached retirement age, make sure that they’re at least investing enough in their 401k to get their employer’s match. If their budget will support it, you should also explain to them the benefits of traditional and Roth IRAs.
Don’t forget about estate planning
Ask them if they have a will and power of attorney. Remind them that you want to respect their wishes, and explain that these documents will allow that to happen.
Preserve the relationship
The ultimate goal here is to encourage and guide your parents with their finances, but they have to be willing to make the changes necessary. Simply lending (or giving) them money will only make a bad situation worse, and can jeopardize both your finances and theirs.
Whatever you do, be sure to preserve your parents’ dignity, keep your own finances firm, and maintain your relationship.