At some point, parents have to decide when to permanently close the Bank of Mom and Dad and allow adult children to stand on their own two feet. If you’ve taught your kids smart money habits from an early age, it may be relatively painless for them to make the leap to financial independence. Cutting the financial cord may be a bit more difficult when the roles are reversed.
What if it’s your own parents who are tugging at your purse strings? Even if you’re willing to help, you could find yourself behind the eight ball if their needs are too much for your budget. Knowing when to draw the line can be tricky but there are some things you can do to handle the situation without ruffling too many feathers.
Consider the Circumstances
Before you decide to cut off your parents you need to think about why they’ve turned to you for help in the first place. For instance, is their situation the result of something they couldn’t control or can you chalk it up to poor financial decisions? Understanding what’s at the root of their troubles with money may be able to guide you towards a solution that works for everyone.
You also need to consider the type of help they’re looking for and how it will impact your own finances. There’s a big difference between asking for a short-term loan versus relying on you for long-term support. Parting with a chunk of cash temporarily may not put as much of a strain on your budget as trying to pay the bills for two households at once.
Related Article: 5 Ways to Financially Support Elderly Parents
Run the Numbers
Your parents may be reluctant to talk about money especially when they’re struggling, but knowing what the numbers look like can help you find a starting point. Start by adding up all of the money they have coming in each month. This includes salary if either of them are still working, pension benefits and distributions from retirement accounts. If they’re eligible for Social Security, you should make sure they’re getting the most benefits possible.
Next, you should look at all of their assets. This includes things like IRAs, brokerage accounts, savings accounts and CDs. Take a look at how their assets are allocated to see if there’s a way to bump up their returns without compromising the level of risk they’re comfortable with.
Finally, you need to go over their expenses carefully to figure out where all of their money is going. If they’re constantly in the red because of careless spending you may need to point out areas where they can cut back. On the other hand, if they’re on a tight budget because they’re spending a lot of money on medical expenses there may not be as much fat to trim.
Discuss Their Options
Helping your parents to get back on track financially may require a little creativity on your part but you need to consider every alternative. For example, if they own their home outright you may want to suggest taking on a reverse mortgage or even selling it altogether. Downsizing may make sense if they’re not able to keep up with the maintenance on the home and it frees up some much-needed cash. They could use the money to buy something smaller or stash it in the bank and opt to rent instead.
If your parents are in a position where selling their home is necessary because they’re behind on the mortgage or they need the proceeds of the sale to pay off debt, having them move in with you may be the best and only option. Before you agree to have your parents share your home, you need to think about how it will impact your current living situation and your overall relationship. Taking the time to establish boundaries and ground rules before you’re all under one roof can prevent friction later on.
Know When to Say No
When you’re helping your parents out financially, you have to be firm about what you are and aren’t willing to do. Once you’ve given your parents the tools and the resources to get their finances back on track, they have to assume a certain amount of responsibility for doing so. If paying their bills is causing you to fall behind on your own payments or worse, rack up thousands of dollars in debt, then your generosity really isn’t helping anyone.
If you’re not comfortable cutting your parents off all at once, it may be easier to wean them off of your finances gradually. Cutting back a little at a time shows them you’re serious about your decision to discontinue support and it gives them time to adjust to managing things on their own. Working out a timeline together can help them feel like they have more control over the process and make the transition easier for everyone.
- Take an honest look at your parents’ financial situation and how it’s affecting your own. If you’re not comfortable doing this alone or you need some more guidance on next steps, you can always do this sit-down with a financial advisor. A matching tool like SmartAsset’s SmartAdvisor can help you find a person to work with to meet your needs. First you’ll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to three fiduciaries who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.
- Once you’ve figured out a plan and drawn your limits, stay firm. It can be hard to tell your parents no, but you don’t want to say yes at the expense of your own retirement or your child’s 529 plan.
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