As I talked about last week, many Gen Xers and Millennials are looking at how expensive it can be to be elderly and how little their parents have saved. They’re worried about their aging parents and wondering how they can support their parents financially. At the same time, many Xers and Millennials are trying to save for retirement and save for their own kids to go to college. And on top of all that, many are still paying off student loans or are saddled with mortgages, car payments, and other credit card debt.
Figuring out how to allocate your money and prioritize your goals can be challenging. It is easy to get overwhelmed with trying to navigate it all and just give up. But pretending the problem isn’t happening and stressing about it isn’t a long-term solution. Luckily, there are some financial steps you can take in your own life so that you’re best prepared to help your parents if that is necessary.
Get Your Own Finances In Order
Generally speaking, the most important thing is to take care of yourself first. If you don’t have your own financial ducks in a row, you won’t be of much help to anyone. You’ll be less able to assist your parents and/or your children and will likely end up becoming a burden to your own children when you are older.
Emergency Fund
An emergency fund is critical to helping you avoid further debt, particularly in these tumultuous times. In normal times, many financial experts recommend building up at least $1000 before starting to tackle more than the minimum payment on your debt. However, given the current financial situation, it would be better to have even more than that before you do anything else. Aim for 6-12 months of critical expenses (those you need to survive, not everything you need to support your current lifestyle).
Debt
Next, you’re going to attack any credit card debt. You are likely paying a high interest rate on credit card debt and eliminating this as quickly as possible will have the largest effect on your finances in the future. Pay the minimum on all credit cards and pick one on which you’ll pay more than the minimum by any amount you can manage. You can choose to pay first either the debt with the highest interest rate (saving you the most money in the long run) or the smallest debt (which will give you a big win and help sustain you through this potentially long process). Once the first debt is eliminated, take the money and allocate it towards the next debt. Keep paying the minimum on all debts.
Once your credit card debt is gone, you can decide how you want to use the money that was going toward the payments. From a financial perspective, you’ll probably do best if you invest the extra money while continuing to make your regular student loan, car and mortgage payments, but there is some wiggle room here depending on your circ*mstances. Talk to a financial advisor or coach if you’d like more guidance on allocating your income.
Retirement
This is a really critical piece. You must save for your own retirement before you can help anyone else financially. Scholarships, grants, and loans are available to help your children pay for college and public benefits provide a decent safety net for the elderly, but nobody can help you save for retirement.
Think about it this way: if you have enough saved for your own retirement, you’ll be better able to help your parents, if that’s what you decide to do. Saving more for retirement now might mean that you’ll be able to retire earlier and provide support for your parents. Maybe you’ll be able to visit more regularly or help them with cooking and cleaning. This could potentially help them stay in their homes longer and minimize care costs. Instead of continuing to work past retirement age, you’ll have more time to devote to supporting your parents.
It’s also possible that if you have saved a sufficient amount of money, you’ll be able to financially support your parents more. Some people who’ve been saving for retirement are pleasantly surprised to find that they have more money than they did before. Perhaps you’ll choose to use your extra money to help your parents as they age.
Putting aside as much as you can now for retirement will allow your money to grow and there will be much more available to you later for whatever your goals are.
And if you don’t save for your own retirement, you’ll be perpetuating the cycle and relying on your own children to support you when you are old.
Other Goals
After your debts are paid and you’ve saved for retirement, what you do next is a personal choice. You need to identify what is truly important to you and come up with a plan for funding all of those things. Only you will know if that’s supporting your parents, paying for your kids to go to college, traveling, giving to charity, or something else entirely.
If you need help working out the specific details of how much should go to each thing, you might want to work with a financial coach or financial planner.
Part 1: Helping Aging Parents with Finances
Part 3: Talking to Aging Parents about Money
Part 4: How to Help Your Aging Parents with Money
