Many of us struggle to successfully manage our money. With most problems in life, we turn to our nearest and dearest for advice.
In fact, according to a recent study, 80% of consumers rely on friends, family and the internet for financial advice rather than seeking professional help. But when a loved one comes to us, it can be a tricky topic to discuss sensitively. It’s even more difficult to know whether you are giving appropriate advice. Here are some top tips for giving financial advice to family and friends.
Avoid Giving Them Money
Don’t just offer them money. It may be the first solution that pops into your head when someone you care about tells you they are struggling financially. But simply giving them money won’t help them in the long term to better manage their finances. It will also make them rely on you each time they are in a tricky situation which can put a strain on your relationship.
Offer Alternative Solutions
If you do find yourself in a situation where your loved one has asked to borrow money for something important, offer them an alternative solution. There are lots of useful funding options available depending on how much they require and their credit score.
Be Objective and Plan
Be objective. Giving them a shoulder to lean on and a listening ear will certainly help them to feel comforted, but if you really want to help, set them real goals and objectives. Avoid non-committal statements such as ‘it will all work out in the end, just try to budget better’. Instead, sit down with them and come up with a real budget plan. For example, why not set up a budget app on their phone? You can pick an amount of money they have to spend each month. Once it’s gone it’s gone, so they must stick to their budget.
Work Out Their Cash Flow
Another option is to help them work out their definite ingoing and outgoing cash each month. By doing this simple exercise with them, you can work out exactly how much disposable income they have. This will allow you to set a realistic monthly budget, which should stop them overspending and subsequently getting into debt.
Don’t forget to take into consideration anything they regularly spend on but is not a definite outgoing, such as hair cuts or leisure activities like yoga or swimming sessions. Advise them to spend their disposable income wisely. Just because they have a bit of extra cash left over each month doesn’t mean they should frivolously spend it. You could also recommend putting any extra pennies into a savings account so they can cover any unforeseen expenses in the future.