My parents aren't getting any younger. I used to look to my dad for financial advice. But now the tables have turned and I'm the one my family comes to with money questions. In fact, the time has come for me to help my parents with their finances.
If you're preparing to take a more active role in your family's money, here are some steps to make the transition smooth and optimize everything for the best long-term results.
Get a Financial Power of Attorney
The first step in taking care of money for someone else is getting legal permission. To make things official, you should get a financial power of attorney. This gives you the legal right to make financial decisions for your parents.
My parents had a local lawyer create a power of attorney that gives me the ability to open and close accounts, transfer funds, enter trades and make payments just the same as my parents can. We both have accounts at Schwab. So I can view most of my parents' finances with the same login I already use for my own money.
Find Out What Your Parents Have and Where They Have It
Once you have legal access to everything, it's time to make an account inventory listing all of your parents' financial accounts. If they have a lot going on, it may help to break down the list by bank accounts, investment accounts, credit cards and other loans.
This stage should give you good insight into your family's overall financial health, retirement planning, monthly income and expenses and other key details.
If you use a program like Mint or Personal Capital to manage your money, consider setting up a second account to view all of your parents' money in one place just as you do for your own. That financial dashboard can come in quite handy throughout the year as you juggle multiple households' finances.
Here's a quick comparison we've made between Mint and Personal Capital:
Get Online Access to All Financial Accounts
Depending on your parents' age and condition, they may be web savvy and have online accounts set up everywhere. Get a copy of the usernames and passwords so you can log in yourself. With power of attorney, you may be able to set up your own login for their accounts too.
What's most important here is that you have access to view balances and transactions and can make payments across all of their accounts.
Take Over the Monthly Cash Flow Using Their System
I have a very streamlined method for dealing with my own money. Nearly all of my payments and bills are on autopay except for some credit cards that I like to pay off manually.
My parents didn't have the same system. Before I started rebuilding from the ground up, I took over the system my parents had set up.
There's probably a good reason for how your parents do things with their money. So learn their system. Once you understand the ins and outs, it's OK to make slight changes to start reshaping things to be easier and simpler to manage.
Turn on Automatic Payments for Recurring Bills
Managing your own bills takes enough of your time. If you're doubling up, you should automate as much as possible so you don't spend hours every month paying bills. Automatic payments have been around for decades. Make sure you use them everywhere possible.
If your parents use rewards credit cards, set as many bills as possible to be automatically paid with those cards. Then pay the credit cards and other bills from a central checking account. With everything going through one place, it's easier to keep track.
Simplify and Merge Accounts Where Possible
A lifetime of finances could leave behind a trail of old 401(k), IRA, bank, credit and investment accounts at multiple banks and financial institutions. Once you have everything comfortably under control, you can take a little time to combine and merge accounts where possible.
Update Investments if Needed
Once all of your parents' accounts are in order, the last place to look is individual investments. Stocks, bonds, mutual funds and exchange-traded funds (ETFs) are common instruments in a portfolio for someone in or nearing retirement. But they may need an update to improve their results. You can make that happen.
Moving to a portfolio with lower fees, more diversity, and investments aligned with your parents' time in life is an ongoing goal for any portfolio manager.
If you find yourself suddenly managing your parents' money, it can seem daunting. However, if you set up a good system, handling your aging parents' finances shouldn't be a full-time job.
You'll have to check in on things from time to time — at least once a month in most cases — but you shouldn't have to upend your life to manage money for your aging parents.
With good planning and some work upfront, it can be smooth sailing for years to come.