Financial planning can be a challenge. But managing someone else’s financial plan is an even bigger challenge—especially when it comes to aging parents. It can be a really tricky transition when the people we’ve always relied on to take care of us suddenly need our care. But by approaching the process with care and clear communication, you can create a financial plan to provide comfort and stability for your parents.
Appropriate Communication is Key
The very first step in managing your parents’ finances is having an open conversation. While it may feel awkward, breaching the topic in an honest manner from the very start will lay the foundation for smoother transitions later on.
It’s important to encourage early planning, so that your parents are in the best possible position to make decisions about how they’d like their estate to be handled.
It’s important to also remember that communication must happen on an ongoing basis. Keep your parents informed of what you’re doing throughout the process and ask for their input. Make sure they feel comfortable with your decisions and respect their wishes.
Get a Power of Attorney
Even though many adults will be resistant to signing over control of sensitive information to someone else, it’s important to pursue power of attorney while your parents are still of sound body and mind. Many legal documents are only valid if signed during a state of sound mind, so even though it may not seem immediately necessary, it’s an important document to have in place for the future.
A power of attorney will give you the ability to access and manage all of your parents’ finances. This includes filing their taxes, managing their real estate or other assets, and handling many other important areas of their affairs.
Identify Your Parent’s Sources of Income
If your parents are retired, some common sources of income include:
- Social security
- 401K or IRA retirement savings plan
- Investment Real Estate
Once you have an idea of how much money they have coming in, you can evaluate their expenses and help them determine if their lifestyle is sustainable.
Calculate Your Parents Expenses
Of course every person’s expenses will look a little bit different, but some typical expenses for retirees include:
- Health care
By understanding how your parents are spending their money, you can better guide their monthly budget to keep them on track for a comfortable retirement. Keep in mind that if creating a budget feels too overwhelming, you can always seek the guidance of a financial professional. Hiring a professional is especially recommended if your parents have many complicated investments, such as a small business or foreign exchange trading.
Access Their Tax Information
Having your parents’ previous tax information will give you a much better sense of their financial status. It’ll also help you file their future taxes and accomplish several other financial tasks as well.
Consolidate Important Information
While parents are capable, have them provide the account numbers, addresses, phone numbers, for all of their various bills, income streams, doctors, medications, etc. It becomes very difficult to gather, understand and provide these vital details when needed if they unexpectedly become incapable of providing you the information. There are a number of journals available that allow you to capture this data in a centralized manner.
Simplify Their Accounts
If you find that your parents have more credit cards or bank accounts than necessary, consider consolidating accounts to make their money easier to manage.
Set Up Automated Payments
Having fewer bills that need to be regularly monitored reduces the chances of accidentally missing one. Many utility companies make it easy to set up automated payments online. This approach is especially important in instances where a spouse may have recently passed away and the surviving partner is not used to managing bills on their own.
Encourage Your Parents to Maintain an Updated Will
Of course nobody likes thinking about the inevitable, but having affairs in order is important for everyone, especially as we get older. If your parents don’t have a will already, you can approach the conversation by explaining that legal wills are designed to ensure that their wishes are followed after their passing. An updated will can make a difficult time much easier for family members while creating peace of mind for both sides. Be sure you know where this important document is kept in the event something happens.
Even though helping your parents manage their finances can seem like an overwhelming endeavor, taking it one step at a time will make the process a lot more manageable. Just remember that maintaining an open line of communication with your parents is key throughout the process. And if you feel that the size of your parents’ estate is too large or complicated to manage, financial professionals are always available to help you. Another advantage of consulting a financial professional is that they provide the insight of an objective third party, which often makes difficult conversations a little bit easier. So, don’t hesitate to reach out to your local Union Community Bank to schedule a consultation and make a plan that will set your parents up for success in their golden years.