It starts innocuously enough. A small, seemingly one-time request from a friend or family member who has hit a rough patch. You are happy to help, and the appreciative party promises to repay as soon as they can.
But then the requests build over time. You expect, without asking, your unfortunate friend or family member to adjust their behavior and scrimp and save, but they don’t. Resentment soon builds, on both sides.
You thought you were helping. But did you throw an anchor instead of a lifeline?
Unintended financial dependence can sink your finances while distorting relationships with loved ones. These four tips will help you define and improve your own financial situation while rebuilding relationships important to you.
1. Define Your Own Financial Needs, Goals, and Values
The first step to extricating yourself from a deteriorating financial relationship is to understand your own financial needs, goals, and values. What kind of life do you want to live? What values guide your actions? How can you support a myriad of financial goals important to you? This can be accomplished by building a comprehensive financial plan.
The value of a plan, though, isn’t in a static document that doesn’t adjust with your financial situation. Life changes, both positive and negative, will affect your goals and paths to achieve them. Make sure you implement an effective money management system that tracks your cash inflows and outflows; outlines expenses according to core and discretionary; and manages your investment assets with a long-term, low-cost, and diversified approach.
Finally, make sure your spouse or significant other is on board with your plan. They can be a valuable source of support during the difficult conversations that may lie ahead as you reconstruct your relationship with financial dependents.
2. Assess the Situation and Determine Your Ideal Outcome
If you have the ability and desire to support one-off financial requests from those important to you, then by all means, go for it. We are here to support, when we can, the loved ones in our lives. What you want to avoid, though, is recurring requests for cash or additional loans. Identify those who have come to rely on you for ongoing financial support.
Before approaching that individual, make sure you understand your willingness, or unwillingness, to make the necessary changes to the existing financial relationship. Decide early on how far you are willing to go. Being firm and consistent during the process goes a long way to reduce the emotional roller coaster you are likely to experience.
Next, outline a transition plan with specific terms. This has a twofold benefit. First, it shows your dependent that you have their best interests in mind and that you aren’t going to simply turn off their spigot with no advance notice. It also shows your friend or family member that you are serious about the process and have a series of objective, achievable goals for both parties.
3. Establish and Enforce Boundaries
“It’s not you, it’s me.” This breakup cliché also applies to a financial breakup. Frame your reason for changing your financial support as a decision that is your own choice, not as a reaction to their choices. Emphasizing the “me” versus the “you” allows you to achieve your goal and not lay blame or make the other person feel worse during the conversation.
Holidays and birthdays can be especially challenging times for the transition plan of a financial dependent. The individual might be used to gifting friends and family with lavish (or in your view, outlandish) presents that they simply cannot afford. Prepare in advance with a set of guidelines or limits on gifts.
Sometimes, what you view as clear rules and bright lines are considered as superfluous suggestions by the other party. In these situations, make it clear that you are serious and committed to the plan. While you can’t change someone’s spending habits, you can choose not to participate in the activities that cause you emotional angst.
4. Ground Rules for Engagement
Conversations about finances are difficult in the best of times. But having “the money talk” with a close friend or relative? You might prefer a root canal. However, there are a few simple rules you can follow to reduce the anxiety and discomfort, for both of you, when you have this important conversation.
First, remain forward-looking and do not play the blame game. Keep the past in the past; focus on the future and how you will both move forward, together, to solve the problem. Be sure to stick to the facts and avoid judgmental or inflammatory statements, no matter how you may feel about where the situation ended up. Avoid vague generalities and outline specifics so the other party can feel informed, confident, and ready to take the next steps in their financial journey.
Family Finances with Harbor Crest Wealth Advisors
Unintended financial dependency can distort relationships and prevent you from reaching your own financial goals. By following these tips, you can define and improve your own financial situation while respecting and rebuilding relationships important to you.If you have additional questions or would like to learn more about how we help families manage their finances, reach out to us today.