How to Set Financial Boundaries as the Wealthiest Member of Your Family

Creating significant wealth on your own is an accomplishment that only a select group of people achieve.

Perhaps you've earned your wealth from an entrepreneurial venture or a career at a startup like Uber, Lyft, and Pinterest that went public and generated rapid earnings on your company shares.

This level of achievement can have emotional repercussions — both because you feel proud of your success and also because you have more wealth than ever before.

Managing new wealth doesn't come easily to everyone, and it's especially challenging if loved ones have expectations about how you'll share the wealth with them.

"When you come into money at any age, it's important to set boundaries," said Joe Goldman, a senior wealth planner at City National Bank.

Parents may expect you to help with their healthcare costs, for example, or your siblings may think you'll foot the bill for the family vacation this year.

While it's normal to want to provide for family members and even friends if you get an influx of money, Goldman noted that such generosity should be approached with caution. Not having a plan for your money can mean a fortune quickly evaporates, and not being upfront about that plan can potentially strain relationships.

"Figuring out boundaries is an important step in protecting yourself and your relationships," she said.

Here are four steps that Goldman recommends you take in order to set financial boundaries with family and friends.

 

1. Determine Your Vision

As with any major life event, coming into new wealth should spark necessary reflection. Before you tell any loved ones about your new wealth, address your personal needs.

“You need to have a purpose behind telling any family or friends,” Goldman advised. "It can't just be, ‘I made this amount of money.’ It has to be, ‘I made this amount of money, and here's what I want to do with it.’”

Take a wide view of your current financial situation and weigh your options: perhaps you can pay off your credit card debt, or save for your child's college education. Maybe you can pay off a mortgage or a car loan.

Goldman recommended having a firm understanding of how your present financial situation could be impacted by this influx of cash, and a few ideas for proceeding wisely.

If your vision involves supporting family members or friends, whether by paying off your parents' mortgage or lending money to an entrepreneurial friend, do the following before you approach your family or friends:

• Determine exactly what that vision is and how much money you'll commit to it.
• Consult with a financial advisor to verify that your ideas are feasible.

If your plans don't include supporting family members beyond what you may already be doing, consider just how much information about your financial situation you feel comfortable sharing with them.

 

2. Tell a Select Few

Goldman understands that you might be tempted to tell everyone you know about your financial success, but this isn't the time for a congratulatory social media post.

Instead, he recommended telling those who will be immediately affected by the financial shift — like a spouse or children — followed by parents and siblings, and then possibly extended relatives and friends.

The conversation should be less specific the further you extend the news out through your social circles.

"In each example, decide on the purpose of your conversation," he continued. "You don't need to disclose the exact amount to your relative or your friend. Instead, you can simply say that you are very fortunate, and you're excited about it, and that's it."

When telling your immediate family, share what your plan is for the money. If you're sharing the news with your children, for instance, Goldman recommended sticking to a script that defines your goals for the money.

"An open conversation will make your children feel included, and will likely keep them from being resentful down the line," he noted. "That being said, a conversation with parents or siblings is slightly different. Money doesn't solve relationship problems. All money does is magnify issues that are already there. Of course, it's nice to help, but you need to be clear about what you can help with."

If you need a hand in conveying your plans to loved ones in a clear yet firm manner, Goldman noted that a mediator may help.

 

3. Stick to Boundaries

Sharing information about your financial status is complicated for everyone, and it can be especially difficult if those close to you expect more than what you're able to give.

For instance, perhaps a sibling doesn't agree with your decision not to give them a loan, or a friend wants you to invest in their business idea, which is not what you have in mind.

Goldman said in those situations, you'd be right on both counts — you should be very hesitant about personal loans.

"As clear and concise as you might have been in your original conversation, people may continue to ask for help, or kids might want more than what you outlined," he noted. "If someone you know doesn't respect your boundaries, then you need to reevaluate your relationship with them."

Goldman once worked with a family who came into $60 million, and he was impressed with the way the parents handled the shift with their children.

The teens were invited to participate in meetings about budgets, estate planning and portfolio reviews, in which they were encouraged to ask questions about investing.

"The dad gave each of the kids $2,000 to invest into the stock market after they learned what to do, which I thought was a great way for them to get experience."

The dad held annual family meetings about his balance sheet, and was clear about the fact that the children would inherit between $1 to $2 million each. "The kids were aware of the rules, and so they didn't complain," he noted. "Since the plan was always clear, the family could operate as a unit. There were no secrets."

Goldman said that the flip side of this example may be a family who isn't as forthright with the amount of money they received, and has a changing set of rules as time goes by.

"So, maybe the dad drives a Ferrari when his kids have to drive used cars," he said. "That can create resentment, since it doesn't make sense for kids to follow boundaries if you don't. You have to practice what you preach, if you're preaching that your kids be careful with money."

Decide what your boundaries are, and follow them — that's the most important lesson Goldman wants people in this situation to remember. This can not only help you enjoy your money but also give others the opportunity to either fall in line or not.

"You should only part with what you're comfortable with, and prioritize using your wealth to achieve your goals, whether that's saving for retirement or donating to charity," he advised.

 

4. Create an Action Plan With an Advisor

Once you have an idea of how you'd like to use your money, hire a financial advisor who can either expand on your plans or give you sound reasons they might not work.

City National's wealth planners can help you navigate your personal and family finances.

This is also the time to research the type of financial advice you're receiving so that you feel comfortable in creating a shared path forward. A financial advisor can explain how to create an education fund, a trust, a retirement plan or an estate plan, depending on what you need and want.