Have you ever wondered why flight attendants instruct you to put on your own oxygen mask before helping others?
It may seem selfish to put your own needs before those of your loved ones, but this rule is actually part of a broader philosophy: in order to help someone else, you must stand on solid ground yourself. This is especially true when you are helping someone financially.
If your older parents' support is forcing you to borrow to make ends meet, you will not be able to support them long. A careful, sustainable approach is the only way to ensure that the wellbeing of all is taken into account.
Because of this, we've rounded up some simple, hands-on strategies from financial professionals who were previously in this situation.
Start a budget
Anika Jindal of What Anika Says has sent money to her husband's parents for the past five years to help them pay off debts from their troubled clothing store. She and her husband plan to continue helping them until the debt is cleared, hopefully by the end of this year.
Jindal said a budget allowed the couple to stick to their own age goals while helping their in-laws. Before they started sending money to his parents, their approach to budgeting was decidedly looser.
"But when we decided to go all in to help them, we started preparing a monthly budget to make sure we were spending our money wisely," said Jindal.
Discuss problems early on
If you suspect a loved one is having financial problems that you might be able to help with, ask them about them sooner rather than later. Financial planner R.J. Weiss of The Ways to Wealth said he saw many people wait until they were in an emergency before mentioning the severity of their situation. At this point, helping them can be incredibly difficult.
Set up a time to speak and quietly ask about any issues you noticed. Avoid being judgmental or critical, as this usually leads to the other person becoming defensive. You want them to open up and not avoid the topic because they are ashamed.
Build your emergency fund
When you are caring for a loved one, it becomes even more important to set up an emergency fund because you are responsible for someone other than you.
Take some time to reevaluate your fixed costs and determine if you need to increase your emergency fund. You may need to save 6 to 12 months' worth of spending instead of just the standard three month recommendation. Caregivers often have unpaid time off, so allow time to pay the bills during this time.
Evaluate insurance policies
If you are financially responsible for someone else, you may need to raise your own life insurance to protect them when you die first. Calculate the annual cost of caring for this person and multiply that number by the number of years they likely have left. If you already have a term policy, you can contact the current provider and ask how they can increase the total payout.
You should also consider taking out disability insurance in case you can no longer work but still need to take care of your loved one.
Now save for it
Finance educator Athena Lent of Money Smart Latina said she always knew she would take care of her father at some point. But when he had a stroke last year, she realized it was going to happen sooner than she expected.
While he hasn't had to move in with her, Lent has begun to prepare for the inevitable. She automatically saves a certain amount each month in a separate savings account to cover his future expenses.
"If you even think you might be in my shoes in the future, start saving up now and finding out," she said.
To find out how much she needs to save, Lent has worked to increase the income from her side business. When she has a different stream of income, she no longer has to worry about pinching a few cents to make everything work.
Establish clear boundaries
Before agreeing to help a relative, think about your own limits and how willing you are to give up. Remember that your limits can change over time, e.g. B. if you have a child or have your own financial difficulties. Both parties should be ready to re-examine the agreement in the future.
If your loved one moves in with you, you should also be clear about who is responsible for what expenses.
“When you have limits, you can tell yourself things like, 'I am ready to cut down on retirement savings for six months, but I am not ready to go beyond a point where I am unable to to perform full match on my 401 (k) & # 39; & # 39; said Weiss.
Do not neglect your own future
As you support a loved one, try to remember the saying, "Don't set yourself on fire to keep others warm."
As tempting as it may be to put your finances in the background, it's important to prioritize your own main goals. Remember, you cannot borrow money for your own retirement.
Get a tax break
If you give most of the financial assistance to a loved one, you may be able to claim it as dependent on your taxes. This can also result in you receiving a special tax credit of up to $ 500.
This will only come into play if they do not claim to be independent of their own tax return. You must also be earning less than $ 4,300 a year, be unmarried, and be a US citizen. Talk to a tax specialist if you are unsure whether or not you can claim someone else as a dependent.
Find external resources
Your loved ones may be eligible for financial assistance that could ease their burden. Contact a social worker who may be able to connect you with organizations that can help you.
The United States Administration on Aging's Eldercare Locator website provides a list of resources available to elders and their caregivers. You can also contact your city's United Way agency to liaise with other local agencies that can provide specific assistance.
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Zina Kumok (117 posts)
Zina Kumok is a freelance writer who specializes in personal finance. As a former reporter, she has covered murder trials, the Final Four, and everything in between. It has been featured in Lifehacker, DailyWorth, and Time. Read how she repaid $ 28,000 in student loans at Conscious Coins in three years.