You can likely thank (or blame) your parents for some aspects of how you turned out. Maybe you have your mother’s eyes or your dad’s habit of chewing with your mouth open.
How you manage money is another thing you likely picked up from your parents — whether they intended you to or not.
While nearly 90% of parents believe it’s important for their kids 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 adviser
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,” says Paul Golden, managing director of communications at
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,” says Kristen Holt, CEO 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,” says Levi Sanchez, founder of
Seattle-based Millennial Wealth, a financial planning firm. “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,
where 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 says. “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 likely 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.
This article was written by NerdWallet and was originally published by The Associated Press.
