Break free of your parents’ money patterns
You probably can thank (or blame) your parents for some aspects of how you turned out. Maybe you have your mother’s eyes or your father’s habit of chewing with your mouth open.
How you manage money is another thing you may have picked up from your parents — whether they intended you to or not.
Although nearly 90% of parents believe it’s important for their children to grow up with good financial habits, almost half don’t know how to discuss money with their kids, according to a 2019 survey of 1,000 parents conducted by Edelman Financial Engines, a financial advice firm. Further, 25% of respondents never or almost never talk to their children about household finances, the survey found.
If your family avoided financial topics, you may find yourself uncomfortable managing money and unaware of the effect your parents had on your financial behavior. But part of growing up is acknowledging what you learned from your parents — both good and bad — and correcting course as needed.
To claim your financial independence, define what your money goals are, understand how to achieve them through daily actions and focus on long-term financial freedom.
Know your history and your ideal future
If you don’t already, track your money management for a month. Document your income, bills and savings.
Now think about how your parents managed money while you were growing up. Look for areas of overlap to understand the money habits you learned. Did your parents carry loads of credit card debt or run behind on bills? Maybe they were frugal savers. If you aren’t sure how your parents handled finances, ask them.
“I think having the money conversation with your parents is important, especially if you come from a household where money wasn’t actively talked about,” said Paul Golden, a spokesman for the nonprofit National Endowment for Financial Education. “Ask about the challenges they dealt with and how they managed them.”
Next, think about where you want to be.
“Put financial goals in perspective of life goals,” said Kristen Holt, chief executive of GreenPath Financial Wellness, a credit counseling and financial wellness organization. “Maybe you want to retire early, or spend time writing a book, or spend time with kids when you have them. What’s the life that you want to have?”
Tip: Compare your money history to the financial future you desire. If you dream about being a homeowner, for example, but find that you aren’t saving enough monthly to build up a down payment, see how you can adjust your spending habits.
Rework your money habits
As you reviewed how you handle money, you probably started to see some patterns. Financial habits are built on daily actions. Identify those you can take to meet your money objectives.
“Once you have your goals articulated and prioritized, understand that you can’t make everything happen all at once,” said Levi Sanchez, founder of Millennial Wealth, a financial planning firm in Seattle. “But you can start the better behaviors and habits that can get you there.”
Budgeting is a simple, powerful habit. The 50/30/20 budget, in which half your income covers needs, 30% goes to wants and 20% covers debt payments and savings, is an effective method to ensure you channel your money in a way that supports your vision.
Sanchez recommends automating habits so your goals are easier to achieve. If you want to increase your emergency fund, set up regular transfers from your checking account or paycheck so you don’t have to think about it.
Tip: Break your goals into smaller, easily achievable actions. Each of these steps will help you build the money habits that create financial independence.
Focus on the long term
The point of carving out your financial independence is to ensure you are making informed money decisions that reflect your values. But it’s also about setting yourself up for long-term financial success. That means sticking to healthy habits but being flexible enough to respond to life changes.
“Part of your money habits should be regular assessments of how you’re doing,” Golden said. “We all need to be realistic that things financially are not always static. You’re going to ebb and flow out of different circumstances.”
Tip: Your financial goals and priorities will probably change over time. Check to make sure your habits are on track every quarter. And reevaluate your goals annually, so your money management evolves along with your priorities.
Pyles writes for personal finance site NerdWallet.
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