credit & debt

How to Establish Financial Independence (with Some Help from Mom and Dad)

If you're lucky enough to have parents helping you financially, be sure their generosity doesn't stop you from becoming independent

Not only is it difficult for us twentysomethings to wholeheartedly embrace adulthood, it's often also a challenge for our parents to let us go. Baby-boomer parents are generally known for mollycoddling their children, even after we move out of the house and into our own adult lives. Some parents have shown up for their kids' job interviews, and others have called up human resource departments at their adult kids' workplaces to complain about bad performance reviews or to negotiate salaries on behalf of their children.

They may mean well, but such extreme helicopter parents are actually hindering their children from growing into independent adults. "If a child is receiving too much help, then they have no incentive to succeed or become independent," says Erin Baehr, of the financial planning firm Baehr Family Financial, in Stroudsburg, Pa. "They may also be setting themselves up for some possible financial trouble down the road."

We certainly don't want that. At the same time, as young adults, we shouldn't be so dead set on finding our independence that we end up punishing ourselves by turning down valuable financial guidance and support from Mom and Dad.

So how about meeting in the middle? You can stay open to your parents' assistance but also set limits on how involved in your life you want them to be. For example, when it comes to parental career advice, Marty Martin, a financial psychologist at Aequus Wealth Management Resources, in Chicago, suggests you say, "Mom and Dad, I would really appreciate any advice you may have before I go to my job interview, and I will contact you after it happens. But I really need to do this on my own."

Just be careful not to send mixed messages. In other words, don't call your parents 20 minutes before the interview in tears, yammering about how you'll never get a job because you think you're too young and unqualified. "If you show ambivalence or fear, that will trigger your parents to step in and protect you," says Martin.

Dealing with the Bank of Mom and Dad

Of course, if your parents still pay your way, setting boundaries can be a bit more complicated. But it doesn't mean you can't have some level of independence. You just have to try as much as possible to treat your financial dealings like a business relationship and discuss them as you would with an accountant or financial planner. Separating money matters from other personal issues will make it easier for you to remain in control of other areas of your life.

To help take some emotion out of the equation, try writing a contract -- a particularly important approach if you move back home but also helpful for those who are receiving financial assistance from afar.

First, sit down and evaluate your current financial situation. (This is a valuable exercise regardless of whether you seek financial support from Mom and Dad.) How much income do you have, if any? How much of that money goes toward paying off debt? What other major expenses, such as food, gas and basic bills, do you have? Try doing this on your own, then go over it with your parents to make sure you're on the same page. If you can evaluate your financial situation accurately, your parents will see how responsible you are and may feel more comfortable providing you with the financial assistance you need.

Next, fill in the holes with a financial support plan both you and your parents can live with, setting different deadlines and goals along the way. For example, when I started my first job, I couldn't make ends meet without taking on debt. So my parents agreed to pay for my rent and any medical expenses not covered by health insurance. However, after about four months on the job, I settled into a budget that enables me to put away about 15% of my take-home pay each month to cover out-of-pocket health expenses. Now, they only contribute to my rent. And we've planned to re-evaluate that assistance after I'm a year into my lease or I get a raise, whichever comes first.

Also, Martin suggests coming up with incentives (or consequences, depending on which side of the fence you end up on). For example, your parents may offer to pay 100% of your rent for a year, as long as you save 10% of your monthly income. If you break that agreement, however, then maybe they will only pay 80% of your rent.

Finally, decide who will handle the actual payments. If possible, ask your parents to give you the money and let you manage it -- rather than paying bills directly for you. Not only will this allow you to develop basic money-management skills and help you establish a credit history -- two important steps in gaining your financial independence -- but it will also prevent Mom or Dad from micromanaging.

If you and your parents can't come to an agreement on these financial matters, Baehr suggests involving a neutral third party, such as another family member, a financial planner or a family therapist. Talking with someone who doesn't have a personal stake in the outcome of a situation can help you and your parents communicate better, particularly when it comes to sensitive issues such as money.

Follow Amanda and the whole Starting Out Kiplinger team on Twitter.
You can also e-mail us at StartingOut@kiplinger.com.

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