Several years ago, a woman called my office and announced that after working for more than 40 years, she was finally ready to “enjoy her life with no strings attached.” Unfortunately, we discovered that she had no savings outside her 401(k), supplemented her lifestyle through credit cards, and never told her two teenage kids about her financial situation. She had failed to properly budget and now, strapped with significant credit card debt, the future was no longer so bright for her family.
While it’s never too late to improve one’s finances, this cautionary tale highlights the importance of planning and communication — for young people as well as adults.
It is important to save for a rainy day, to establish goals, and to encourage a healthy relationship between your children and money. But how? Try implementing this three-step process with your children:
Step One: Develop a Budget
Creating a budget makes saving much easier. Start with essentials such as house expenses, food, and utilities. Then, move to more negotiable items such as trips, subscriptions, restaurants, and clothing. To keep the family on the same page, share your budget with your family members and consider assigning a portion of it to them. For example, take the restaurant or clothing category, and consider making a competition to see who spends less than the allotted amount. If you have older children, you might also consider motivating them to earn their own money. This way they can develop an appreciation for the value of money and to contribute to the family’s financial well-being.
Step Two: Begin to Save
Saving is key to avoiding interruptions in your life. To avoid the constant use of credit cards, make it a priority to save according to the different aspects of your life. Your savings should cover three categories: emergencies or basic needs, short-term goals, and long-term goals. Remember, what separates those who have savings from those who don’t comes down to spending less than you make.
Step Three: Make It a Habit
It’s important to make saving a family habit. Instill in your children the habit of budgeting and saving and make it a habit to talk openly about money. Pick a time and a day each week to discuss the financial decisions you all have made. This is a great time to discuss adjustments because of price increases, or occasions when you were able to save more than expected. As a family, it is important to have a common goal. When everyone rows together, the family gets there faster.
Remember that your role as a parent is to introduce and nurture healthy habits that will help your children for the rest of their lives. Budgeting and saving are powerful tools to get them ahead of the curve.
And you don’t need to do it alone. Working with a CERTIFIED FINANCIAL PLANNER™ professional is an excellent way to reach your financial goals. Your CFP® professional can also help you explore ways to get your entire family working toward a better financial future.
Communicating your financial goals is not only important to your own well-being, but also can be important to preventing many family conflicts.
For more resources to assist you and your family, visit LetsMakeAPlan.org.