Any time we intermingle money and relationships, there’s bound to be a ton of emotional stress involved.
On one hand, we feel an obligation to help out those that we care about. After all, we don’t want to be perceived as selfish. We may feel guilted into “taking care of the family.”
However, we also have a duty to take care of our own immediate household and secure our own future. If we don’t stop the cycle of relying on others financially, then who will?
Plus, some of our family members may not have the best track record with money. Giving money to people who seem to waste every dollar they make doesn’t seem like it helps the broader issue.
In fact, we may just be enabling the bad behavior.
Most of the time, responsible parents find themselves supporting their adult children.
However, what if the roles are reversed and your mom or dad say THEY are the ones needing financial help? How could you ever say no? After all, these are the people who love you most. They spent tens of thousands of dollars on YOU growing up. You naturally feel obligated to return the favor.
So… Should you help out your parents financially?
The answer depends on your financial situation, why your parents need the help in the first place, and how long they anticipate needing financial assistance. After all, even though you love them, you don’t want to be viewed as the “welfare state” and primary source of income. This has the potential to damage the relationship.
Why are they needing the money?
This is the first question to ask.
At surface level, you may be saying, “Well, duh. Obviously, I need to understand why they need the money.”
However, I’m not talking about the immediate need. Sure, they may need $500 in order make their rent or mortgage this month. They could be looking for $100 to buy groceries or medicine.
The SYMPTOMS are clear. However, you need to drill down into the root CAUSE.
Just like Rome wasn’t built in a day, your parents’ financial situation is a culmination of decades of daily choices.
Identifying and rectifying the cause will help them build financial independence going forward.
Understanding the cause
Identifying the set of decisions and circumstances that has led your parents to ask for money from you is important to determining whether you should give them money or not.
Maybe, the reason is no cause of their own. Perhaps, your mom or dad lost their job. Even with unemployment checks, maybe their lifestyle and overhead are just to high to survive on a lower paycheck, and they need money to bridge the gap.
A significant debt load could be the underlying reason they are stretched so thin. They’ve been making the minimum payments all along, but the weight of their obligations has finally taken a toll on their finances.
Hopefully, this isn’t the case, but perhaps a certain vice has caused them to be stretched financially. An addiction to gambling, drugs, or alcohol could be the source of their financial instability.
In these cases, would giving them money be wise or would that just enable the bad behavior?
When giving money may be acceptable
Sure, there may be certain instances when giving your parents money is acceptable.
When done correctly and under the right circumstances, this could be an opportunity to “step up” and be there for your mom and dad. If you’ve planned and set yourself up financially, you can be a blessing to your parents.
But… how do you know if you’re capable of helping your parents out? Here are a few general guidelines we’ll dig into:
- Your parents have exhausted all other options
- Giving them money doesn’t negatively impact you or your own family’s long-term future
- The financial support doesn’t enable negative or destructive behavior
- The support is for a finite period of time
1. Ensure your assistance is their last resort
Financially supporting your parents more than likely will complicate the relationship – especially, if asking for money becomes habitual.
Why is that?
You may feel like you have a right to interject your opinion or wishes into your parents’ finances. After all, you now have a stake in a game that you can’t control. Your financial futures have become intertwined. This results in boundary issues.
On the other side, your parents may feel shame or like a failure that they are burdening their adult children. Even if you’re willing to help, depending upon their need, they may indeed cause additional financial stress.
Before giving them money, first ensure they’ve taken reasonable steps to get their finances on track.
After all, if there’s no change in their lifestyle or commitment to eventually cut financial ties, you could be in for more than you bargained for.
Are they on a financial plan?
Budgeting is the first step to gaining control of the household finances.
If your parents are asking for money but aren’t compiling a monthly budget and tracking their spending, they should consider implementing these steps BEFORE you give them money.
Often, just living by a budget will help them find the extra money needed to make ends meet. More than likely, they’ll easily identify areas of waste. Before you give them money, ensure they’ve cut out non-essential spending and committed to tracking their personal finances.
Have they sold any expensive and unnecessary items?
Selling expensive toys or items is another way they can exhaust their other options. Plus, it proves they are serious about gaining control of their financial future. After all, selling our valuables is tough, but the sacrifice is evidence of commitment.
Perhaps, your mom and dad irresponsibly financed $80,000 worth of luxury vehicles. By selling the vehicles and getting a more affordable car, they could drastically reduce their financial strain. Maybe, they own a boat or ATV. Selling these items could raise extra cash and eliminate monthly maintenance and/or storage expenses.
If they own an expensive home, maybe it’s time to simplify life and downsize. While home-ownership is great for long-term wealth and stability, the maintenance cost on a 4-bed/3.5-bath house could no longer be optimal for their current situation. Selling their more expensive home, downsizing, and using the remaining equity to clear up their financial issues could be a valid strategy.
Before you consider giving your parents substantial monetary support, check for signs that they have sacrificed luxuries in their lifestyle first.
It’s ALWAYS easier to spend other people’s money.
If they have unnecessary, costly assets, they may be better off cashing in these items rather than tapping your bank account.
2. Secure YOUR future FIRST
Any help you provide your parents should not come at your own financial detriment.
This may seem selfish considering all your mom and dad have done for you. However, you can’t be generous in the long-term if your own financial household can’t stay afloat.
Therefore, if you’ve determined the help is short-term in nature and for good reasons, only give money out of surplus.
Sure, you may need to cut back on luxuries and extra savings if your parents require help. However, you should be able to provide for your basic and future needs (such are retirement, kids college, healthcare costs, etc.) BEFORE giving your parents a single dime.
Prioritizing your own financial needs will help you secure your financial future and mitigate any resentment you may feel giving your parents money.
How can you tell if your financial future is secure?
Financial security often feels elusive.
No matter our salary, we want to earn just one more dollar. Even if we’ve accumulated a $1 million, the goalposts shift and our new objective may become building a $5 million nest egg or more.
For those of us that are “savers,” we often correlate our financial worth and successes to our own value as individuals. Clearly, our money and stuff does not define us. However, sometimes we’re prideful by nature.
While money will never bring happiness and contentment, a large enough portfolio of savings (when coupled with a conservative lifestyle), can result in financial stability.
There are few obvious metrics and a few signs that aren’t so obvious.
- Do you have a significant debt load?
- Are there any looming, big-ticket expenses on the horizon?
- Is your bank account padded with enough to last you ~3-6 months if you lost your source of income?
- Can you continue plowing away at savings goals and still have margin left to give?
- Have you begun to build financial prosperity (beyond JUST financial security)?
1. Do you have financial messes you need to clean up first?
Before giving money to anyone else – even your parents, you should first assess if you have financial issues to resolve first. If so, it will be extremely hard to justify giving your parents money.
Just like flight attendants tell you to secure you own mask FIRST in the event of a loss in cabin pressure, you must secure your own financial future FIRST before you can assist others.
If you have a significant amount of debt (especially debt with an interest rate of 5%+), work to clear the consumer loans before you give money to your parents for their financial issues.
There are two primary ways to pay down your debt:
- The Debt Snowball
- The Debt Avalanche
Financial guru Dave Ramsey popularized the Debt Snowball method as part of his “Baby Step #2.” This method primarily relies on psychology to help you pay off debt.
With the Debt Snowball, list your debts smallest to largest regardless of the interest rate. Pay minimum payments on everything but the smallest, and begin attacking the smallest debt with every extra penny. As you begin eliminating small debts, you’ll have even more cash flow to plow into the next smallest debt. Plus, the psychological win of paying off debt will keep you motivated to limit your lifestyle!
The Debt Avalanche method takes a different approach. If you choose this method, list your debt from highest interest rate to lowest interest. Attack the debt with the highest interest rate first!
Whatever method you choose, eliminate your own consumer debt before assisting others financially.
2. Ensure large upcoming expenses are covered
More than likely, you may have a few expensive items on the horizon.
Perhaps, you’re in need of a newer car or your vehicle simply needs to undergo a costly repair. Maybe, you have a looming hospital bill from a recent doctor visit that hasn’t arrived. For college students, you may have tuition, room and board, and other living expenses to pay for. If you have children, they may have upcoming expenses for braces, vehicles, or even college.
Before you commit to giving money to others, ensure you have enough budgeted and saved for upcoming future expenses.
You could be able to comfortably meet your monthly obligations. However, one of these big-ticket expenses could knock you off your feet. In many cases, the adult child turns to their parents for financial assistance. However, if your parents are the ones in need, who could you turn to for these upcoming expenses? Nobody. Really, you’re just on your own.
In order to avoid a financial set back, make sure you’ve accounted for any of the “known” financial obligations that will eventually come due. You may have accumulated a decent sum of money to cover these items. However, do not justify having a nest egg as an excuse to give others money.
Instead, you have done a detailed budget and understand and have accounted for any upcoming, looming expenses.
3. Plan for the “unknowns” with an emergency fund
Establishing an emergency fund is one of the best financial strategies to employ.
Instead of turning to payday or personal loans, an emergency fund provides “insurance” in the event of unexpected financial setbacks. Unfortunately, 26% of Americans have no emergency savings. In fact, 60% of Americans couldn’t cover an unexpected $1,000 expense.
If you’re contributing to this horrific statistic, you’re probably better off building emergency savings BEFORE giving money to your parents.
After all, an emergency fund is the first step on the path to achieving financial security. This cash cushion greatly reduces the amount of stress you feel and provides a barometer for your financial health.
How much do you need? Most financial experts recommend accumulating 3-6 months worth of expenses in a separate savings account.
In the event of a job loss, medical emergency, or other unexpected expense, this should be enough to see you through. Instead of being forced to borrow money or sell something around the house, you can simply pay cash for the expense. Then, rebuild your savings.
Before giving your parents (or anyone else) money, ensure you have AT LEAST 3 months of living expenses socked away for a rainy day.
4. Determine your monthly margin AFTER reaching your savings goals
Just like an emergency fund is the first step to protecting your finances, ensure you are still able to reach your savings goals if you decide to financially support your parents.
After establishing at least a 3-month emergency fund, you still have other financial goals to reach to secure your financial future.
What is margin?
Your monthly margin largely determines how much you can comfortably afford to give your parents each month. Margin is the amount of monthly savings leftover after accounting for your income and expenses.
As an example, if you earn $5,000 per month (after taxes), invest $750 into retirement, spend $1,000 on rent and utilities, $500 on your car payment and insurance, $600 on groceries, $300 on entertainment, and another $500 in a 520 College Savings Plan, your monthly margin is $1,350 ($5,000-$750-$1000-$500-$600-$300-$500).
Essentially, this represents your monthly “cash cushion.”
If you do decide to give your parents money, it should only be a conservative percentage of your monthly margin. After all, it’s not unusual to get hit random, unanticipated monthly expenses. You’ll want to ensure you have enough margin to cover these costs.
5. Ensure you are on the path to financial prosperity
Before committing to putting the parents on the payroll, you should have some assemblance of financial prosperity.
Think about it, you don’t want to just be barely getting by.
Sure, you may have some monthly margin, an emergency fund in place, contributing 10%-15% for retirement, and a little extra spending money at the end of the month.
However, is this really living?
For some people, maybe they’re content with this scenario. Over multiple decades, sure, you’ll build wealth. However, are you on the path to achieving your dreams?
Just because you may need to start supporting Mom and/or Dad doesn’t mean you must abandon your financial goals. Don’t get sloppy and use the fact that you may have to delay your goals to justify going off the rails.
3. Do NOT enable bad financial decisions or behavior
If you do decide to support your parents financially, ensure that you are not enabling destructive behavior.
Are the reasons they’re in a financial mess in the first place a culmination of bad money habits? If so, make sure they have committed to change and have PROVEN they’re reforming their finances.
Often, debt is the source of financial stress for many Americans. While some debt (such as a mortgage) allows borrowers to gain control of appreciating assets, consumer debt robs from your future. If your parents have a tendency to rely on consumer debt, it will inevitably be hard for them to prosper.
Too often, Americans overvalue “stuff” in our lives. We lease new, luxury cars. Many of our peers buy clothes, shoes, and jewelry on credit. Both young and old enjoy exotic, expensive vacations for the novel experience. Sometimes, we think accumulating things and experiences will bring us happiness and fulfillment.
However, we rarely find joy in our purchases.
Maybe, your parents have fallen victim to the cycle of debt. They may have purchased homes and cars to impress neighbors, friends, and family. Your parents could even be members of exclusive clubs or organizations in hopes of finding acceptance.
Even if they just have no self-control, YOU can’t enable irresponsible behavior by subsidizing their lifestyle.
Would you be willing to fund that expense?
Before you start shelling out money, ask yourself if EVERY expense is justifiable.
Sure, we would all gladly pay for our mom’s medicine. We’d all pay for our parent’s groceries rather than let them go hungry.
However, are there certain expenses in their budget that are keeping them from being able to pay for these more important expenses themselves?
If they can’t afford groceries because they have a vice such as gambling, taking care of that issue first is the only way to fix the problem.
Perhaps, your parents don’t have any “vices” in their life. If this is the case, they’ve probably justified expenses they couldn’t afford for decades.
We’ve all made dumb mistakes. However, continuing to make the same stupid mistakes is insanity. Before enabling their out of control spending, ensure they’re on a plan to live on their own incomes. Often, this will involve substantially reducing their lifestyle.
They may not be able to live the same way they have been living. However, their spending behavior should be sustainable before you give them money.
4. Ensure there’s an end to your financial support
Virtually all of us fall on hard financial times at some point.
At times, we may need to take a second or third job, sell items around the house, or even ask for help.
If you do decide to help your parents financially, you should probably ensure there’s an end in sight to your financial support. After all, it’s probably not healthy for your parents to rely on you for support for the next decade or two. Further, this will probably hurt your long-term financial situation.
Identify when they will be back on their feet
Understanding the nature of your parents need and talking to them about their plans can help you assess how long they will need your help.
Before committing to support, it may be best to outline in writing how much you are willing to give them AND for how long.
Helping out your parents with a few hundred bucks over the next month or two may be a no-brainer. Most of us can probably afford the expense. Plus, the duration is short-term and has less of a chance of causing conflict or resentment in the relationship.
Conversely, paying their mortgage for the next 6 months or year probably will strain your own finances. Plus, after the 4th or 5th month, you may find yourself questioning why they haven’t been able to get back on their feet. Eventually, this could lead to resentment in the relationship.
So, have you decided if you should help your parents out financially?
Doing what you can to help your parents during their time of need is probably an easy “yes.”
We all want to see our mom and dad succeed financially. Watching them worry and stress about money impacts our own mental health.
However, simply giving them money may not be the best (or only) option. Sure, a few hundred bucks for groceries or a small amount of money here and there probably won’t cause issues to either party. By contrast, giving your parents money that stresses your own financial household or causes resentment is clearly not sustainable.
Instead, look for ways you can help your parents that don’t involve outright giving them money.
If your mom has required advanced care which has kept your dad off work, you can volunteer your time to care for her while your dad gets back to work. Instead of giving them cash, you can alleviate some financial strain by inviting them over for dinner a few nights a week. If you have an extra vehicle, allow them to drive that car so that they can sell their expensive car they financed.
In the end, you will have to decide if the situation warrants outright giving your parents money.
In summary…
Before giving them money, ensure there aren’t better ways or options to solve the problem. Have they sold expensive, unnecessary items? Has your mom or dad looked for part-time work or a second job?
If you do decide to give them money, ensure it doesn’t negatively impact your own future. Calculate your monthly margin and only give them a conservative percentage of the excess so that you can achieve your own financial goals.
Don’t give them money if the support will enable destructive financial behavior. If you’re funding their excessive alcohol consumption or gambling addiction, your financial support is not a blessing. If your parents have developed frivolous spending habits, giving them money will only exacerbate the issue.
Ensure you come to an agreement for how long you are willing to help. Eventually, you will probably need to cut off financial support. Agreeing on a timeline ensures they know your financial support has a definite life. This gives them time to get their act together while also providing a sense of urgency. Plus, it keeps you from feeling resentment and needing to have that awkward conversation of when you’ve had enough.