By Richard W. Stout III and Thomas Britt
If you’re doing well financially, treating yourself occasionally or helping a loved one in need may be something that fulfills you and brings you joy. However, these actions can become problematic when they happen repeatedly and begin to take a toll on your financial life. To stay on track towards your financial goals while maintaining strong relationships with the people closest to you, it’s often necessary to set and maintain healthy money boundaries.
What Are Money Boundaries?
In general, boundaries define what you’re willing—and more importantly, unwilling—to accept from yourself and others. They provide a way to maintain your identity and wellbeing within your personal and professional relationships.
More specifically, money boundaries are the limits you set for your finances. In some cases, you may set financial boundaries for yourself. For example, you may have a personal budget that guides your spending each month.
In other cases, you may need to set money boundaries with others. This is especially true if you have people in your life who depend on you for financial support or relationships in which money frequently changes hands.
It’s important to note that financial boundaries aren’t the same thing as financial goals. However, the limits you set for yourself and others can play a major role in your ability to reach your financial goals and achieve financial freedom.
Why Are Financial Boundaries Important?
Among other factors, your upbringing and culture largely influence how you think and feel about money. For instance, if your parents had few limits around their finances, you may have difficulty setting healthy money boundaries yourself.
Setting financial boundaries is important for a variety of reasons. First, it helps prevent the people in your life from taking advantage of you. When family and friends know you have no limits when it comes to money, they’re more likely to ask for financial support.
Worse yet, some people may realize they can take from you without your permission. If you’ve ever loaned your credit card to a family member or coworker, you know what a slippery slope this can be.
Setting healthy limits is also important for your personal financial success. Indeed, you may have a responsible financial plan in place. However, if you’re constantly deviating from that plan to make impulse purchases or help loved ones, you’re likely not making much progress towards your financial goals.
Ultimately, setting and maintaining appropriate money boundaries is essential for your future financial success. Fortunately, if you’ve been lax about money in the past, it’s never too late to set limits for yourself and others.
How to Set Healthy Money Boundaries for Yourself
If you’ve never set money boundaries before, you may find it helpful to start by setting limits for yourself. It’s often easier to say no to yourself than to say it to others.
First, examine your personal financial habits. Are you disciplined when it comes to your money? Or do you have no idea where your money goes each month?
A quick look at your spending habits versus your income can help you identify potential areas for improvement. How much do you spend each month, and how much do you save? If you don’t have an emergency fund or retirement savings, that may be an indication that you’re overspending.
In addition, you may want to calculate your net worth. Put simply, your net worth equals your financial assets (cash, investments, and other property) minus your liabilities (debt).
Ideally, your net worth should increase over time as you accumulate wealth and pay down debt. If this isn’t the case—or your net worth is negative—you may need stronger money boundaries.
Once you’re aware of your current financial picture and habits, you can determine if you need to set new limits for yourself. For example, you may need to start tracking your spending more closely to avoid overspending. In some cases, you may want to take more extreme measures, like cutting up your credit cards.
You may also find that working with a financial advisor or coach is necessary. An experienced financial professional can help you set and enforce healthy money boundaries and financial goals, so you ultimately make better financial decisions.
Setting Healthy Money Boundaries with Others
After you’ve set clear money boundaries for yourself, the next step is to assess your money habits with others. In other words, how often are you giving or lending money to those around you without getting anything in return?
In some cases, giving or lending money to loved ones may not be a problem. For example, if your children are minors, their financial needs are likely built into your budget. Similarly, giving to your church or favorite charity may be a planned expense that doesn’t take a toll on your financial life.
On the other hand, you may have people in your life who are constantly taking from you in an unhealthy way. For instance, you may find yourself always treating certain friends to lunch, but they never return the favor. Or you may have family members who always need financial assistance but never seem to get back on their feet.
Setting money boundaries with others is necessary when their bad money habits or demands impede your financial progress. Many of us enable loved ones for far too long because we’re afraid to have a difficult conversation. Telling someone you care about “no” can also be guilt racking.
Still, it’s important to remember that failing to set firm boundaries with those around you doesn’t help you or them in the long run. If your goal is to be financially free one day, the best thing you can do today is learn to say no.
Communication Is Key
Lastly, be sure to communicate your new money boundaries to the people in your life who need to hear them. It’s always easier to stick to good habits when everyone knows the rules of the game.
For example, if your adult child has been living at home since they graduated college, they may not know that they’re taking a financial toll on your life. It may be helpful to have a calm discussion with them about how much they add to your monthly expenses. Then, you can let them know that you expect them to contribute going forward (or find their own accommodations).
At the same time, it’s important to be honest with others about why you’re saying no to them, whether it’s turning down a lunch invitation with a friend or telling a family member that you can’t lend them money. The more consistently you stand your ground, the less likely they are to test your limits.
A Trusted Advisor Can Help You Set and Maintain Healthy Financial Boundaries
If you find it difficult to stick to your new money boundaries, consider working with a trusted financial advisor. In addition to helping you set clear limits around your finances, an advisor can help you make better financial decisions and develop a plan that helps you achieve your financial goals.
Benchmark Wealth Management provides holistic financial planning services for high-net-worth professionals and retirees. To speak with a member of our team, please don’t hesitate to get in touch.
About Rick
Richard W. Stout III is managing director of Benchmark Wealth Management, LLC, with 25 years of experience in the financial industry. He specializes in financial planning and asset management for individuals, families, and institutions seeking to build and monitor durable and sustainable plans for their financial futures. Rick is a Certified Financial Planner™ professional and holds the Accredited Investment Fiduciary® (AIF®) designation. He obtained his MBA from Rensselaer Polytechnic Institute and his BA in Economics and Anthropology from the University of Connecticut. Rick has earned a Master of Science degree in Personal Financial Planning from the College for Financial Planning. He has extensive background experience in lending, credit review and analysis, and real estate and partnership management. Learn more about Rick by connecting with him on LinkedIn.
About Thomas
Thomas J. Britt is managing director of Benchmark Wealth Management, LLC, with 20 years of experience in the financial industry. He specializes in executive financial planning, retirement planning, investing, as well as the management of trusts and endowments. Thomas is a CERTIFIED FINANCIAL PLANNER™ professional and holds the Master Planner Advanced StudiesSM, MPAS®, Certified Investment Management Analyst® (CIMA®), and Chartered Retirement Planning Counselor℠, CRPC® designations. He earned a Bachelor of Science in Finance from the University of New Haven, an MBA in financial technology from Rensselaer Polytechnic Institute, and a Master of Science in Personal Financial Planning from the College for Financial Planning. He is also a proud veteran of the United States Navy Submarine Force. Learn more about Tom by connecting with him on LinkedIn.
Additional information, including management fees and expenses, is provided on our Form ADV Part 2, available upon request or at the SEC’s Investment Advisor Public Disclosure site, www.adviserinfo.sec.gov/firm/160192
Securities offered by Registered Representatives through Private Client Services, Member FINRA, SIPC in the following states: AZ, CA, CT, FL, KY, MA, ME, MI, MN, NH, NJ, NY, RI, TX. (Securities-related services may not be provided to individuals residing in any state not previously listed.) Advisory services offered through Benchmark Wealth Management, LLC a Registered Investment Advisor. Benchmark Wealth Management and Private Client Services are unaffiliated entities.