Today, I am debt-free and run my own business with my wife, a platform we created called Rich & Regular, where we inspire others to improve their financial lives. And I know that I wouldn't be where I am now without my mom's financial support and sacrifices, especially to help get me through college.
For years, she worked two jobs, and weathered layoffs and the 2008 recession, all of which affected her savings. Now in her mid-70s, she will soon rely on me for supplemental income. That's not unusual: One-third (32%) of adults aged 40 to 64 provided financial support to their parents in 2019, and 42% of that group expect to do so in the future, according to a January 2020 AARP survey.
Being a part of this "sandwich generation" means I have to think proactively about my approach to savings, budgeting, and even my own retirement. But my wife and I have a plan. And if you're in a similar position, here are the strategies that have helped us think ahead.
Talking to your parents about money when you are helping to financially support them can be uncomfortable. But it's one of the most important conversations you'll ever have, because it gives you the opportunity to learn how their approach to money shaped yours. Understanding those patterns can also help you make some positive changes in how you handle your own finances.
I also wouldn't try to cover every subject and concern in one conversation. Set up regular meetings with them over a period of time to get the full picture and ensure you have the information you need to properly support them. Then you can move onto more sensitive subjects like debt and savings.
My best advice, no matter what level of proficiency your parent has with financial literacy, is to go into these talks prioritizing active listening over offering instruction to help your parents feel more comfortable sharing sensitive information with you. The more details you have, the better equipped you'll be to help them.
Video by Courtney Stith
The median balance of retirement contribution plans for people aged 65 and older is $58,035, according to Vanguard's 2019 How America Saves report, which means that a considerable number of retirees have a smaller well to draw from to supplement Social Security. If you're supporting your parents, this is likely where you would step up to fill in any income gaps.
Your support could come in the form of recurring transfers to a checking account, assuming responsibility for an expense, or covering a list of services they need. But just as you would in your own life, you should also prepare for the unexpected in your parents' life, like medical bills and auto or home repairs.
Conventional wisdom suggests we should have 3 to 6 months of expenses set aside to protect ourselves from the unexpected. But after speaking with other entrepreneurial families who have been self employed for decades, my wife and I have taken a different approach.
In addition to an emergency fund, we rely on what we call a cash runway. Essentially, this means that we plan to have enough cash on hand to cover our fixed expenses for at least six months in advance. Doing this allows us to operate our business more confidently and know that our bills are paid for the foreseeable future in the event we have longer-than-anticipated lapses in income.
Then on a quarterly basis, we reassess how many months in advance we want to stay ahead and what needs my mother may have that require additional cash on hand.
After you've covered the basics like budgeting and setting funds aside for the unexpected, for us the next step was having a family conversation about life insurance and legacy planning. Your parents may have specific wishes for what they want to be done in terms of assets and possessions at the end of their life.
If so, these requests should be formally documented in a will and/or trust to ensure their preferences are executed effectively. There are free services like the Tomorrow app and affordable online options like Rocket Lawyer and LegalZoom. However, if there are significant assets at stake or unique circumstances, experts recommend you work directly with an estate attorney that can ensure state laws and the nuances of your parents' requests are captured accordingly.
Over the course of five years, my wife and I paid off $200,000 in debt, including auto and student loans, credit card debt, tax debt, and our mortgage. So we have a lot of experience keeping costs low. And with those money milestones met, now a top priority is to maximize our income so that we can comfortably afford to provide for my mom's care.
While I can't predict the future, it's safe to assume that as my mother ages, she'll likely need specialized services and medication. This does create an additional line item in our budget, but being self-employed with multiple streams of income means that there isn't a cap on what we can earn. And as my mom draws from her retirement savings, I'm confident that we'll be able continue to grow our business with her future needs in the forefront of our minds.
Julien Saunders is the co-founder of the blog Rich & Regular. In between 2013 and 2018, he and his wife and co-founder Kiersten paid off $200,000 in debt.
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