Making Awkward Financial Discussions Easier for Everyone
Do you have someone in your life such as a spouse, a parent, your child, or a close friend that is making unwise financial decisions that are destructive or unproductive? Most of us have someone like this in our lives. We want to help that person achieve financial well-being but we do not know where to begin. It may seem impossible to help them get on a good, solid financial track without appearing condescending or judgmental. It is not our intent to put our loved ones on the defensive or to make them feel inadequate but we cannot stand by and watch them continue to make their financial situation worse.
Two Key Financial Concepts You Need to Teach
If you can impart any financial wisdom to your loved ones, there are two key concepts you should try to teach them. Through these two concepts, you can help them understand wise money management and key financial principles.
Living within your financial means allows you to have more money for high-priority purchases and discretionary spending; and, Having the discipline to correct your bad money behaviors and habits leads to financial security.
Learning to Live Within Your Financial Means Usually Corrects Bad Behavior
When people overspend, we need to look at the psychology behind why they overspend. People overspend for a variety of reasons including low self-esteem, insecurity, the desire to keep up with friends or deeper needs that are not being fulfilled. Addressing the reason why someone is overspending is often the first step in learning how to control spending and develop better money management skills. Begin by keeping a spending journal to detail each time the person spends money. Writing down the emotions or thoughts that the person was experiencing at the time of the purchase can often help that person see a pattern that they can correct to stop overspending.
Knowing why we overspend is only one step in achieving better money management skills. Financial security rests squarely on living within one’s means. If a person truly wants to have financial security, that person must have the discipline to change spending habits, correct bad behaviors, create and live within a budget, cut out trivial spending and prioritize financial goals. Being financially irresponsible and having a lack of discipline sabotages a person’s spending goals and works against that person’s best interest. Helping your loved one learn how to be disciplined and focused on obtaining financial security may be difficult but it is possible.
Taking the First Step
Sometimes you just need to take a deep breath and jump right in; however, the person you are trying to help may not appreciate your enthusiasm, especially if that person does not recognize he or she has a problem. In the case of a family member, you may want to consider having a family meeting rather than signaling out one person. Addressing the entire family’s finances is often much less confrontational than “calling out” the person who is the real problem. Make it a family project rather than an individual problem.
If you are trying to help a friend or family member outside of your immediate family, try opening the discussion by bringing up something from the news or something that has happened to someone you know to begin a conversation on financial security and financial well-being. Knowing that others are struggling with financial difficulties and dealing with money issues often makes it easier for people to address their own struggles. Once you have opened a discussion with your loved one, try one or more of the following strategies to help your loved one gain more control over his or her finances.
Be a good example! Discuss ways that you save money on your everyday spending such as using coupons, searching for deals, and taking advantage of bargains. Tell your friend how you are paying down debt, saving for college, funding a retirement account, and building equity in your home. Make sure to tell your friend how great it feels to make good financial decisions.
Offer your financial expertise. Offering to give money to someone who is not making wise financial decisions is not helping that person learn money management skills or learn to become financially secure. Instead of giving them money, offer to use your skills to review their budget or help them create a monthly budget to find ways they can reduce expenses, cut out unnecessary spending, and set financial priorities. Teaching these money management skills will help them as they work to become more financially disciplined.
Do not co-sign loans. It may be tempting to co-sign loans for someone in need; however, you are putting your financial security at risk. If this person is not financially responsible, the chance that he or she could default on the loan is high. This will leave you holding the loan by yourself. The worst-case scenario is that you will be unable to pay the loan and your credit rating will suffer. If you feel that you must help the person by giving them money, then give them the money, consider it a gift, and write it off.
Schedule a regular time to review finances. Once someone agrees to let you help them with their finances, schedule a regular monthly or weekly meeting to review budgets, discuss goals, learn about new financial tools and to discuss failures, and learn how to correct financial mistakes so they do not happen again.
Review how credit cards work. Explain how interest is calculated and added to the balance owed on the credit card. Review how long it will take to pay off the credit card balance if you make minimum monthly payments. Questions to discuss:
“What could you do with the money you use to pay interest if you did not owe that credit card balance?”
“Was what you purchased with the credit card worth the extra money you must pay in interest payments?”
“Could you have waited on that purchase in order to save the interest payments?”
“How will you feel about your purchase in XX years (the time it will take to pay off the balance of that purchase? Will it be worth it?”
Explain that every company has to operate on a budget to be successful. Questions you can ask:
“Why does a company need a budget?”
“How does a budget help a company manage its funds and employees effectively?”
“At the end of the year, what happens to the money that is left over above the projected budget?”
Teach the person how to create a budget. Describe the benefits of having a budget then use budgeting tools (there are many good budgeting websites online) to teach the person how to create a budget including calculating gross income, setting up expense categories, including categories for savings and retirement, and adjusting the budget to ensure you do not have a negative balance each month.
Discuss spending priorities. Questions you can ask:
“What’s most important to you?”
“What can you live without?”
“What do you want that can be purchased less frequently or at a lower cost?”
Discuss the rewards of good financial management. Questions to ask:
“If you’re able to meet or beat your budget, how do you think you’ll feel?”
“How would you reward yourself if you did so?”
For more information contact our office to schedule a consultation with the attorneys at Krause Donovan Estate Law Partners, LLC. Their experience and knowledge can help you have the peace of mind of knowing that you have a plan. Contact Attorney Daniel J. Krause or Nelson W. Donovan today.
Reach us through our website or call our office at (608) 344-5491 to schedule your confidential, no-obligation initial consultation