As first generation wealth builders, we face the very real possibility of needing to financially support our parents. Read on for five steps you can take today to prepare for this future.
Whether or not to financially support your parents is a heavily debated one. Practically, people have made arguments against this support. Culturally, people have made arguments for the financial support. In any case, many of us may come from the reality of: “I feel a sense of responsibility to my parents who have sacrificed so much for me and my siblings. AND I also want to feel financially stable myself.”
This expectation is engrained us at a young age, that’s why it’s hard to see something different. It comes through playful jokes about how we will take our parents out of “la pobreza,” or the moments where we’re told that in [enter your parents’ native country here] people would be grateful for less than half of what we’re given. Now, there is truth to many of our parents’ statements, but it is also important to build a solid foundation of sustainable self-care. What we don’t want is for anyone to take care of family at the expense of their own personal health.
In episode 79, we heard from Sarah, who comes from a culture where caring for our aging parents is not a far-fetched reality at all. For many of us, we may even feel a duty to care for them. In some cultures, caring for our parents financially is something a child has to earn.
First Generation Realities
As first generation wealth builders, we are the first ones in our families to do things like earn a comfortable salary, negotiate for higher pay, have access to employer-sponsored benefits, build business, and build wealth through investing. At the same time, while we are building our own financial security and future wealth, we face the very possible reality of financially supporting our parents.
So how do we balance the two? Read on for five steps you can start taking today to financially support your parents.
Five Ways To Prepare To Financially Support Your Parents
We first want to introduce you to two main ways of approaching this: you can start saving now towards a family emergency fund (an emergency fund that is only used for the moments someone in your family needs quick cash), or you can develop a fixed line item in your monthly budget to give directly on a monthly basis. Which you choose will depend on
- The urgency of the moment
- The stability of your current financial landscape
- The depth of the support you need or want to offer
For example, if the need is urgent, you need to start creating your monthly budget if you don’t already have one and begin implementing a line item expense that represents the financial support of your family. If you want to be prepared for what you know is likely coming, perhaps building out a family emergency fund is your way to go.
Here is how to get started with either:
1. Run Your Own Personal Finance Audit
Without whole consideration of your current reality, many solutions that are put in place risk not being sustainable. For example, let’s say there is in an emergency situation where one of your parents lost their job. Initially, you may have what you need to provide this quick support. But let’s say you start to run out of extra funds within 4 months—what then? Running your own personal finance audit now (rather than waiting for when you actually need it) is proactive and forward thinking. Once you have an idea of your financial landscape, you will see how much you have to give, or how much you need to start earning to meet your financial support goals.
2. Talk With Your Parents and All Members Of Family
Thinking about money as an individual is stressful. It’s not surprising if you don’t talk money with your family either. While this is something that we would like to take care of by ourselves, the reality of supporting parents or parts of another family (outside of yourself and your immediate family) needs to be painted clearly. These are some of the things you should know before creating any goals:
- What is/what will be my parents’ living situation?
- By what age do I expect my parents to stop working? Or, by when would I like for them to retire?
- What medical conditions (if any) do I need to account for?
- Are there any retirement forms of income to be expected? (ie pension, social security, etc.)
- What kind of experiences do I want to give them?
If you can’t yet answer any of the above, you are not fully ready to decide upon a number to save towards. Take some time to talk with your parents about these topics. If you have siblings, talk to them and discuss what a collaborative financial support of your parents looks like. If you have a spouse, now is a good time to include them in the conversation as well, as they will be impacted by financial decisions you may take.
And if talking feels too scary (right now) to talk directly with your parents, take time to really think through these questions realistically.
3. Set a SMART Goal
As a refresher, a SMART Goal is one that is specific, measurable, achievable, relevant, and timebound. If your goal does not answer each of these components, you are risking the success of your goal. And when it comes down to how to financially support your parents, you want to make sure that there is a strong foundation. Getting this specific with your goals ensures that you have a clear roadmap of what needs to happen to meet that goal. Consider these questions:
- How much is needed per month?
- By when?
- Who will have access to these savings?
- For what purpose(s)?
For example, a sample SMART goal for this situation could be:
Within 10 years, I want my parents to have a monthly minimum cash-flow of $2,000. This amount will not be used for the mortgage, but solely for expenses such as food, transportation, bills, entertainment. Over the next 10 years, I will explore and buy real estate investment properties to fund this.
From this goal, I have clear measures of what needs to happen for me to accomplish my goals. A great idea would be to add even smaller goals that align with this one larger goal. We want to make the process as easy as possible by doing the thinking and planning at the beginning.
4. Build a Line Item On Your Budget
Whether you have decided to build out a family emergency fund or are committing to recurring budgeting, building a line item in your current budget makes absolute sense. It’s all about planning for the unexpected. This line item will be influenced by the questions you answered in all of our previous points.
5. Consider Other Forms Of Support That Are Not Cash
Some articles can make this bit sound insensitive. What we are saying is this: is it just money that your parents need? Or are there additional kinds of support that they may need, that money can’t quite buy? Maybe more than anything, your parents just don’t want to live by themselves—is there a way for you to live under the same roof? Is there a way for you to live within walking distance? The best way to understand where your parents are at is through talking to them.
Or when it comes to building out the cash you’ll need for this, what other options can you consider outside of your salary? In the example in step 3, we used the example of real estate investment cash flow. Consider all of your options here.
The Bottom Line
Whether you are 25 or 45, as a first-generation wealth-builder, the thought of financially supporting your parents has surely come. Rather than waiting until the moment they need financial support, we can protect our money goals and maintain our sanity by preparing for this as early (and feasible) as possible