parental support en-US How (and Why) to Help Your Parents Pay Off Their Mortgage <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-and-why-to-help-your-parents-pay-off-their-mortgage" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src=" at Windsor Castle.jpg" alt="couple at Windsor Castle" title="couple at Windsor Castle" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>Your parents have a fair chance of carrying a hefty mortgage well into retirement. According to a <em>Newsweek</em> article (&quot;<a href="">Many Baby Boomers May Retire with Mortgages</a>&quot;), 63% of 55- to 64-year-olds have a mortgage. Some may be close to paying off the mortgage, but my observations and research lead me to believe that many of these homeowners (in some cases, the parents of 20- and 30-somethings) have a mortgage loan balance that is frighteningly close to the value of their property (in 2009, a <a href=""><em>New York Times</em> article</a> indicated that about 15% of those 55- to 64-year-olds are <a href="">underwater</a>, as are 30% of homeowners in the 45-54 age range).</p> <p>If your parents happen to carry a large balance after several mortgage refinances, and they adhere to standard repayment schedules, they may be in their 80s before the mortgage is paid (read <a href="#why">why you should care about their finances</a>).</p> <p>I won&rsquo;t suggest that you take on your parents' mortgage in addition to managing your financial obligations. But if your parents are weighed down by seemingly never-ending financial duties, there are ways to help mortgage-indebted parents, get on a solid financial footing, and build better parent-child relationships:</p> <h3>Support Home Downsizing</h3> <p>A major part of the rationale behind extreme borrowing was that your parents would eventually sell the house, pay off the mortgage, and use home-sale proceeds to buy a smaller home outright and supplement savings. The fall in housing prices may have made them rethink the timing of the home sale, but what also may be holding them back is the now-grown kids&rsquo; desires to return (perpetually) to the homes of their youths, either in the form of primary residences or vacation homes.</p> <p>Even if they can&rsquo;t sell their homes for as much as originally envisioned, they can still extract themselves from a hefty mortgage and <a href="">homeowner expenses</a>, such as HOA fees, utilities, upkeep, and property taxes. Don't be nostalgic about the house if your behavior and words will stop your parents from selling. Consider new ways that the family can reunite over holidays and vacations.</p> <p>If they start planning now, they&rsquo;ll be more likely to sell the house and buy a suitable one with a much smaller mortgage (or none at all) within the next few to several years.</p> <p>While you&rsquo;re encouraging the downsizing, help them get rid of stuff. One of the things I&rsquo;ve noticed that&rsquo;s been a problem with my parents (and my in-laws) in de-cluttering is that the kids want to keep their stuff at mom-and-dad&rsquo;s house. Take it with you! Secondly, help them sell or donate (and <a href="">claim a tax deduction</a>) on valuable-but-unnecessary things to ease the move to smaller space.</p> <h3>Pay Your Way Through Graduate School</h3> <p>Your parents may offer to pay for your graduate degree, especially now that they do not have expenses associated with groceries, medical and dental bills, clothing, and more for a growing family. If your career is stagnating and they seem relatively successful, then you may be considering approaching them for assistance.</p> <p>To fund graduate school, they may need to tap a home equity line of credit. Even if they have funds to pay your expenses, encourage them to use extra money to accelerate mortgage payoff or tuck away dollars for unexpected expenses.</p> <p>Explore options to pursue a <a href="">graduate degree on a budget</a>, which may include taking classes on a part-time basis, getting tuition reimbursement from your employer, landing a fellowship, and <a href="">winning scholarships</a>. These approaches may put you in a better position to snag your dream job after graduation than if you had quit your job and borrowed money to attend grad school.</p> <h3>Pay Rent</h3> <p>If you are living at home and working in any capacity, pay rent. Pay enough to cover incremental costs associated with your share of utilities, groceries, and incidentals, plus an extra amount that will allow them to pay down the principal on the mortgage.</p> <p>Admittedly, I didn&rsquo;t pay rent to my parents when I graduated from college and lived at home because I was still looking for a job and had no source of income (or thought I didn&rsquo;t). Within four months, I moved away, started paying rent to a landlord, and eliminated expenses associated with my upkeep.</p> <h3>Share in the Costs of the Family Vacation</h3> <p>Pay a portion of the expense for the vacation home that your parents may arrange for the family get-together, or take care of meals and activities.</p> <p>If the vacation is solely your parents&rsquo; choice and you have no input on the location, make alternative plans or see if your parents are open to changing the venue if you share expenses.</p> <h3>Compensate Your Parents for Childcare and Babysitting Services</h3> <p>Pay for childcare and babysitting, or find ways to compensate them without handing over cash. Bring meals, handle repair jobs, or find bargains for them.</p> <p>Some grandparents may watch their grandchildren infrequently and could be upset at offers of money. Others, though, are regular caregivers and will appreciate some extra cash. They may have child-related expenses for snacks and meals or simply have less time to engage in money-saving activities such as <a href="">bulk cooking</a> or doing their own yard work.</p> <h3>Throw a Frugal Wedding</h3> <p>Having a frugal wedding may seem natural or outrageously unacceptable depending on your social circle and demographics. Note that your parents may need to borrow to pay their portion of wedding-related expenses. Setting a reasonable budget and spending on what truly matters are keys to the elegant-but-frugal wedding.</p> <p>Some folks may host relaxing rehearsal dinners at private homes. Others eliminate traditional expenses but <a href="">splurge on cost-effective wedding alternatives</a>.</p> <h3>Collaborate to Make or Save Money</h3> <p>It&rsquo;s likely that parents and their now-grown or nearly grown children can collaborate on cash-producing and money-saving projects. When my youngest son was 11-years-old, we worked together to sell Yu-Gi-Oh! cards online (not that I&rsquo;m perfectly capable of tackling this task independently). He provided insights into buying motivations of consumers and handled certain aspects of listings (such as selecting cards and taking digital images) while I took care of the financial matters (purchasing supplies, advising on costs to fulfill orders, and managing the financial settlement account).</p> <p>You can also help each other save money by sharing expertise, perhaps through online and brick-and-mortar bargain-shopping expeditions or <a href="">hands-on cooking lessons</a>.</p> <h2><a name="why"></a>Why Bother?</h2> <p>Carrying a mortgage into retirement may not seem all that bad, especially if social security checks will cover the amount. But if parents have to take withdrawals from retirement accounts to cover basics like housing, then they&rsquo;ll pay taxes and deplete savings at an exponentially higher rate than if they&rsquo;d knocked out the mortgage prior to retirement. That is, they'll pay taxes on retirement fund withdrawals (generally considered ordinary income, unless they've socked away money in new Roth IRAs), which can trigger taxes on social security income that will then lead to selling more assets to pay the extra taxes, and so on.</p> <p>According to Schwab MoneyWise, <a href="">44% of retirees are supporting other people</a> and though <a href="">most young adults are financially independent</a>, &ldquo;41% of parents still provide some level of financial support to their children ages 23-28.&rdquo; Judging from articles on their financial priorities (such as this discussion on <a href="">college savings vs. retirement</a>), those now in their 20s and 30s are determined not to make the same mistakes as their parents. Priorities include containing or eliminating the parent-to-child money flow. Learning how these mutually responsible relationships should work doesn&rsquo;t have to start when you explain the need for financial independence to your 18-year-old as she packs for college but can start by modeling financial independence now.</p> <p>You may have some angst about your future, and you may wonder why you can&rsquo;t afford what your parents did, which may have included private school tuition, a large and well-appointed home, and frequent meals out. But if you can take a peek behind the curtain, then you may discover that they incurred too much debt and really couldn't afford some or all of these expenses. These realizations may guide you as you make decisions about spending and saving.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="">Julie Rains</a> of <a href="">Wise Bread</a>, an award-winning personal finance and <a href="">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-8"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="">5 Steps to Take If You&#039;re House Poor</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="">How to Afford Payments on Your Adjustable Rate Mortgage</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="">Here&#039;s What to Do If You Can&#039;t Afford Your Mortgage Payment</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="">Prioritize These 5 Bills When You&#039;re Short on Cash</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="">7 Secrets to Refinancing an Underwater Mortgage</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Debt Management Real Estate and Housing Retirement mortgage parental support parents Tue, 18 Jan 2011 13:00:13 +0000 Julie Rains 454551 at Escape the Economic In/Out Patient Care Cycle <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/escape-the-economic-inout-patient-care-cycle" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="" alt="Finding Financial Independence" title="Finding Financial Independence" class="imagecache imagecache-250w" width="250" height="375" /></a> </div> </div> </div> <p>A while back I finished reading <em>The Millionaire Next Door</em> and was really impressed with the data results, though the data is old by today's standards, it is still valid; most millionaires are frugal savers who live modestly. The chapter that had the most impact one me, however, was the chapter entitled &quot;Economic Outpatient Care.&quot; The term is basically defined as people who are being financially supplemented by their parents. This chapter also went on to define Economic <em>Inpatient</em> Care, which means the adult is not only receiving financial aid from their parents, but lives in their parents' home as well. As a woman who has been financially independent since the age of 18, this information confirmed what I've always believed: people who are given too much financial aid from parents or relatives are less likely of being able to reach financial independence.</p> <h3>Economic Outpatient Care Gone Terribly Awry</h3> <p>I know a woman in her mid-60's, we'll call her Leslie*, who has received outpatient care supplements all her life. While married to a well-to-do television director, she played the stay-at-home-stepmom and dabbled in interior design. Her own parents were frugal business owners who happened to be financially savvy and established a trust fund for all three of their daughters, Leslie being one of them.</p> <p>Leslie's marriage to the director ended after 20 years and she found herself lost amid the world of computers, technology, and being single once again. However, the spending habits she had acquired during her marriage continue to this day &mdash; lavish lotions, extravagant purchases, trips out of the country. Her parents supplemented Leslie's lifestyle sporadically throughout her life. After her divorce, and her mother's death, Leslie began to rely on monthly stipends from the trust fund. She was able to justify these payments while helping her ailing father who was suffering from Alzheimer's. When her father died, Leslie had spent so much of her parents' trust fund, she ended up owing her sister thousands of dollars. She not only had spent her portion of the fund, she had also dipped into her sister's as well. (The third sister had settled for a lump sum out of court, but that's a whole other saga.)</p> <p>Leslie is now spending the remaining portion of her savings trying to figure out what went wrong. She is deep in credit card debt and is living off residual income that is well below what she is accustomed to. Unfortunately, she is an extreme example of what happens when parents bail out their children time and time again; they are unable to modify their lifestyles and support themselves, often making terrible financial decisions along the way.</p> <h3>The Inpatient Is Ready to Be Discharged</h3> <p>Learning through other people's mistakes is often a painful example of what not to do. A very close relative of mine, Bill*, is 30-years-old and lives at home with his parents. Since high school, he has left home twice, only to be &quot;returned&quot; after a few months of living on his own. Bill's parents would rush to his rescue at the slightest possibility of failure and bring him home. After years of trade school training and failed attempts at multiple industry jobs, he is once again unemployed. Bill is living like he did when he was a teenager; his mother cooks for him, does his laundry, allows him to sleep late, and only ever so often razzes him about getting a job. But Bill is not a teenager, he's an adult. Bill's problem is there is no motivation to move out and change his predicament. Why should there be when everything is done for him? Bill's parents are very frugal people and financially savvy, yet can't see that their continued help has hindered Bill's potential of ever becoming financially independent.</p> <h3>Solutions for the &quot;Patient&quot;</h3> <p>The patients will need some guidance to escape either one of these scenarios, which are both detrimental to their financial well-being. Below are a few tips that could help them escape the cycle of financial dependence:</p> <ul> <li><strong>Create a budget.</strong> There are so many useful and free programs today to help create a monthly budget of regular expenses. But a great way to create one is by using a spreadsheet. List typical monthly expenses, such as rent, utilities, phone bills, groceries, auto expenses, etc. and how much you think you spend on each category. Looking at the list on paper, you might find some areas where you could save money.<br /> &nbsp;</li> <li><strong>Track your monthly spending.</strong> To verify your budget is correct, keep track of what money is being spent. Whether you decide to save the receipt of every purchase and keep them in labeled envelopes, or sign up for an online program that helps keep track of your expenditures, both methods will allow you to see where your money is going.<br /> &nbsp;</li> <li><strong>Increase your income. </strong>Side jobs, a second job, selling things on eBay or Craigslist, are all good ways to increase your income and move away from any monetary supplements you might be receiving.<br /> &nbsp;</li> <li><strong>Be diligent.</strong> Get down to the basics. You might want that cashmere sweater or a trip to Cancun, but these are things that you may not be able to afford at the moment. Instead of looking at wants, whittle your expenses down to your needs for a set amount of time, say six months. After six months, you might find you've saved enough through living frugally to purchase a want or take a trip with your own money instead of your parents' money.</li> </ul> <h3>Solutions for the Parent</h3> <p>It's understandable that parents want what's best for their children and want their children to be happy. However, sometimes children, especially adult children, need to solve problems on their own. If a young adult is constantly being bailed out financially, they learn to accept that the safety net is always there. Instead of cutting back on expenses and finding ways to generate additional income, they begin to rely on that financial supplement. Some tips to help parents foster a sense of financial independence:</p> <ul> <li><strong>Help the patient come up with a budget.</strong> Many of these patients may have no trouble asking for additional funds, but might find it hard to ask for help with devising a budget and sharing their personal finance.<br /> &nbsp;</li> <li><strong>Wean the patient off the supplements.</strong> If supplements are being sent to the patients every month, it's time to reduce them. It might be easier to give the patient a warning, letting them know you can no longer support their lifestyle. Then, slowly reduce the supplements until they are supplement free.<br /> &nbsp;</li> <li><strong>Give the patient a deadline.</strong> If the patient is an &quot;inpatient&quot; and living rent-free, it's time to get tough. Give the patient a deadline to get a job, pay a minimum amount of rent, pay a small portion toward utilities. If the patient has a job, set a deadline to move out. Becoming financially independent often revolves around becoming an independent adult.<br /> &nbsp;</li> <li><strong>Quit rescuing them every time they ask.</strong> Allowing the patients to come up with their own solutions to their own problems allows them to take charge of their lives. People learn lessons best through hands-on scenarios. If parents are constantly solving their children's problems for them, the children quickly learn to rely completely on the parents and are at a loss as to how to solve a problem.</li> </ul> <p>Economic Inpatient and Outpatient Care is a perfectly coined phrase for a position that no one should envy. These patients need guidance to escape from their cycle of dependence. Once the cycle is broken, all participants will find that independence is something that can't be bought, only earned.</p> <p><em>*The names of the people mentioned have been changed to protect identities.</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="">Little House</a> of <a href="">Wise Bread</a>, an award-winning personal finance and <a href="">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="">New Study Says You Should Spend Less on Kids Sports. Here&#039;s How.</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="">How to Use New Toys to Teach Kids About Money</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="">7 Habits of Highly Frugal People</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="">24 Tips for Having a Baby Without Going Broke</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="">The Most Valuable Thing Debt Takes From You Isn&#039;t Money — It&#039;s This</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Budgeting Family family finances income parental support saving Fri, 09 Jul 2010 14:00:21 +0000 Little House 170620 at