Cutting the Financial Umbilical Cord

You have your own apartment. Your own paycheck. You may even have your own spouse and children. So why do your parents still prepare your taxes, balance your checkbook or manage your investments?

Isn't it about time you grew up?

It's certainly not uncommon for your parents to handle some aspect of your finances. My dad, for example, handled my brother's investments until he was 28 -- and mine until I was 24 (and I had been working at Kiplinger's for three years and certainly knew how to do it). I have friends whose parents are paying their credit-card or mortgage bills. And who doesn't know someone who has returned home to live with Mom and Dad -- or hasn't done it himself?

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So what's the problem? Having someone you trust handle your money for no charge seems like the ultimate in convenience and comfort. I'll admit that the arrangement is particularly helpful when you're starting out and you're trying to juggle new responsibilities. But eventually, you've got to cut the cord and learn to manage your money on your own.

Why?

For starters, Mom and Dad aren't going to be around forever. Second, you may reach a point in your life when you don't want your parents to know the intricate details of your finances. Third, you'll want to teach your own kids how to be financially successful someday, so you better know how. And last, but certainly not least, it's a matter of self-respect and pride. I, for one, feel great confidence in knowing I make the decisions for my finances and my future.

The bottom line: Whoever controls your money controls your life.

How to declare your independence

The desire for parents to help their kids is nothing new, as is the desire for kids to let them. Just don't let it get in the way of you learning to succeed financially on your own. Cutting the cord can be a scary prospect. But here are four steps for a successful transition:

1. Start small. You've got to crawl before you can walk. So it may be best not to cut the financial cord all at once -- just one snip at a time. If your parents are involved in several aspects of your financial life, assume responsibility for one at a time, making an effort to do each task right.

For example, focus this month on putting an end to your shameless mooching. You know, every time you stop by the house, you raid the pantry and filch a few cans of chili and a tube of toothpaste, and then you help yourself to the quarters in the loose-change dish. You're not a starving college student any more. You're a successful young adult for heaven's sake. Buy your own chili!

Once you've taken on one task, take on another, then another. For example, learn to balance your own checkbook (snip!). Once you get the hang of that, shop around for your own car insurance (snip!). Then learn how to invest (snip!). Then tackle your own taxes (snip, snip!). Your transition won't be as scary if you ease your way into financial independence.

2. Establish boundaries. What financial intercession is okay and what isn't? Talk with your parents to draw the line for both parties. For example, is it okay for you to ask your parents for a loan? Is it okay for them to pay for your plane ticket home for Thanksgiving?

This can often be more difficult for well-meaning parents than for you. For example, my dad and my father-in-law still try to pay for things for me, despite the fact I've been financially independent for years: I've had a job since I was 15, I paid my own way through college, I've been filing my own taxes since I was 19, and I'm married with two kids. Personally, I don't have a problem with them picking up the check at dinner now and then. But when one of them offers to pay for my groceries just because we happened to swing by the store together, it drives me batty. You'll need to talk with your parents about how to draw the line between generosity and independence.

3. Stay in the loop. If both parties decide it's really best to keep your parents in charge of some aspect of your finances for now, take an active interest in it anyway. For example, say your Mom's an accountant and you're both okay with her preparing your taxes each year. No big deal. Just make a point to sit down with her and learn about what she's doing so that, if and when the day comes you have to do it yourself, you'll have a clue. Or if you really want Dad to manage your investments, make sure you're involved in the decision-making. Don't just hand over the reins and walk away.

This shouldn't be a long-term arrangement, though. You will want to phase out your parents' involvement eventually. After all, there may come a day when your mom or dad will be unable to file their own taxes or handle their own investments, so it's in everyone's interest that you know what you're doing.

4. Solicit your parents' advice. If your parents know what they're talking about, there is nothing wrong with continuing to ask for their input. They have a lifetime of wisdom or perhaps professional expertise that you'd be crazy to ignore. But in the end, it's up to you to make the final decisions about your money and your future.

Erin Burt's Starting Out column is designed to help you cut the financial cord with confidence. Check out the archives for more insight and information on managing your money in young adulthood.