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Enter New Year with smart money rules

Define what’s okay and what’s not around your money. [Courtesy]

January is a month of reckoning for those who made unwise financial decisions over the December holiday. The Christmas and New Year festivities come with excess spending as family and friends spend on each other as they try to make merry.

In all that excitement, it is easy to forget about the importance of boundaries. 

Edith Siddondo, a certified money coach and author, founder and chief executive officer of Profit Acumen, a money coaching firm, says it’s very easy to find yourself making emotional spending decisions that are disastrous.

She shares insights on how to create healthy money boundaries with yourself and those around you:

What are money boundaries?

Money boundaries are guidelines, rules or limits that you have around spending, lending, investing and giving to ensure you are financially taken care of and don’t end up feeling lost and out of control when it comes to dealing with your finances.

“Money Boundaries are not optional; they are necessities.” There is an old saying that: “good fences make good neighbours.”

When boundaries are clearly defined, you and your neighbours eliminate uncertainty and bad feelings.

You know which area of land you need to maintain and which area is the responsibility of someone else. The fence also defines where you’re allowed to walk freely and where you’re trespassing.

You respect each other and get on with life – on your side of the fence.

And that is precisely how it works with money, when you know how to set boundaries.

Simply put, having that clarity by defining what’s okay and what’s not around your money, helps a great deal.

Good financial fences mean you know how much money you can spend, save, invest and give each month and every year. You also know which kinds of purchases can be made, who can make them, how and when.

With clear money boundaries, you ultimately eliminate uncertainty and lift the money fog. In the process, you’ll end up feeling more confident and in control of your life and the decisions you’re making.

Where do you draw the line?

There are two types of money boundaries you can set: boundaries for yourself and boundaries for dealing with others.

Why is it important to set money boundaries with family and friends?

They say that money can’t buy love but it sure can complicate it!

Money is a very emotionally charged topic and one wrong word could incite a fierce argument.

In my work as a money coach, it’s repeatedly becoming evident to me that being clear and intentional about personal finance can completely change someone’s life irrespective of their level of earnings.

A key part of being intentional is to clearly define what is and is not okay and this should be guide what you want. What outcome are you after when it comes to your money?

When it comes to family, friends and money, unspoken expectations lead to premeditated resentments.

I think we all know of families and friends who have dealt with resentment from unspoken expectations. This is especially true when money is involved. For instance, many conflicts between couples, siblings, parents with their children and even close friendships, are linked to money.

These kind of statements may sound familiar; “I thought this was “our” mortgage, how has it now become mine? My family treats me like I am their ATM; She always has no money, I keep paying the bills each time we go out, I feel used by my friend.”

All of this resentment can be prevented by simply communicating our money boundaries with clarity to our loved ones.

Knowing (and standing by) your money boundaries helps to preserve your relationship with those you love, and keep it on solid footing. Money changing hands has the potential to change relationships, if you don’t know where the lines are.

Setting clear money boundaries is a great first step to building better connections.

Certified money coach and author, founder and chief executive officer of Profit Acumen, Edith Siddondo. [Courtesy]

Why do many people find it difficult to set money boundaries with family?

Many people find it difficult to say “no” to someone asking for help. This can be especially true when the people asking for help are family or close friends and the help they’re asking for is money.

Because of this inherent fear of saying “no” a number of the working population have found themselves tripped up by codependency when it comes to money and family. This is called financial codependency.

Financial codependency occurs when we make the financial needs of others greater than our own needs. Typically, financial codependency plays out with family members and can also be seen in relationships with friends or significant others.

Among friends, it commonly takes the form of one person continually loaning money to friends and seldom getting paid back. With couples, one partner may concede all the finances to the other and be unaware of their financial status or situation. You will also find situations where parents give to their children and may continue this giving pattern well into adulthood.

Some parents give until they die, which indicates how large an issue financial codependency can be. Many parents realise they have made mistakes and feel guilty around the way they may have raised their children.

As a way to compensate for the inadequacies in their parenting, they create ways to help their children financially to relieve some of that guilt.

While all of these can be supportive ways to help our loved ones financially, if the motivation is to enable, tension can be created and the opportunity for the other party to learn and grow to become financially independent is lost.

You have to set firm boundaries and determine the type of help you will give and under what circumstances.

How do you know which exact boundaries to set?

A good rule of thumb is to set boundaries that will prevent you from feeling [as if you are being] taken advantage of.

This could mean agreeing to a repayment plan on the loan, drafting a checklist of questions to ask about the loan, or even signing a contract. “Whether it’s enabling others’ bad behaviours or supporting someone when they lack personal responsibility—feeling [as if you are being] used brings a host of negative emotions.

The question to ask is whether the situation causing a person to request help from you is a rare crisis or the reflection of long-term financial drama. 

Are you being asked to help with money in a horrible, unprecedented situation? Or is it to protect someone from the natural consequences of their own actions to enable their destructive behaviour? In the latter case, “if the banks won’t lend them money, why should you?

How do you turn someone down respectfully?

If you’re uncomfortable turning someone down, ask yourself why you feel pressured to say “yes” when your boundaries feel threatened. “You can’t think you are someone else’s financial saviour or that the worst-case scenario will happen if you don’t step in.” 

When turning down a request for financial assistance, you don’t need to justify your actions or provide any explanations. A simple “no” can suffice. 

Being able to say “no” can go a long way in helping your relationships with others. As difficult as it is, sometimes we do need to say “no” .

 Is there any connection between high income earners and codependency?

Let’s start by defining a state of financial well-being which is an ideal and a desirable state for majority of people when it comes to dealing with money.

Financial well-being is a state of being where a person can fully meet current and ongoing financial obligations, can feel secure in their financial future and is able to make choices that allow them to live their desired lifestyle. This state is unique to each person.

It’s important to understand that one’s level of earning does not necessarily guarantee a state of financial well-being. Income alone doesn’t give a complete picture. This brings to mind what one of my mentor’s refers to as “the elite poor”; people who earn a lot of money but have no money or what they call their money is borrowed money. This is a serious problem with our working population.

You see, you cannot give what you don’t have. Effective money boundaries begins with honesty with yourself when it comes to dealing with your money.

Using your earnings as a basis to not say “no” to any money requests from your family or friends can be very misleading and has led some people to go into debt to give out money they don’t have. Often this turns out to be a huge financial mistake.

What should one do before handing out money to a friend or family to help? 

Before thinking of helping others, we need to first step back and look at our own finances. Ask yourself what is my current financial situation? Am I financially secure now and into the future?

We can only be in a position to answer this correctly if we have clarity on our overall numbers; earnings, expenses, debt and investments. The road-map to a state of financial well–being entails structuring our finances in a manner that it allows us to attract, retain and grow our money; all three combined.

When we get stuck at the “earn” level and not pay attention to retain and grow our money it’s a clear recipe that gives rise to an “elite poor” scenario.

So while you may find it nerve-wrecking to set boundaries and feel obligated to give away this money because “it’s family,” it can equally put a large strain on your personal finances and long-term money goals.

The truth is, you can’t control the expectations that family members, friends have of you, but you can choose to let go and focus on what you can control which in this case is to take good care of your finances and this will even allow you to support them from a more empowered position.