Parents expect yet another bailout from their adult child

Dear Liz: My parents never developed good behaviors when it came to money. They didn’t save, budget or make good spending decisions. Recently they’ve fallen on hard times. My mother is on disability, and my father is unable to get a salaried job. He’s an independent contractor who doesn’t make enough to regularly cover their mortgage payments, let alone food or medical expenses.

I love my parents and want to help, but I don’t want to financially ruin myself or become their money tree. I’ve bailed them out in the past (including several months’ worth of mortgage payments to avoid foreclosure). I am 30 and have a good job, but they seem to think I have an obligation to help them. I resist doing so when I’m told they expect me to pay, but I’m troubled because the situation is affecting their health. How can I establish and maintain proper boundaries?

Answer: No one, including your parents, can dictate what you owe your family. You have to work that out for yourself.

Helping your parents with a life-threatening emergency is one thing. Repeatedly bailing them out of stressful financial situations they’ve created for themselves is quite another, particularly if you’re stinting your retirement savings or going into debt to do so.

So even if you can afford to help, the question remains whether you should. Often people who mismanage money continue to do so if enabled with cash infusions. They don’t have to change, so they won’t.

Your parents, like everyone else, need to learn to live on their current income — not what they used to make or what they hope to make soon. If they can’t cover the mortgage payments, they need to find a cheaper place to live — preferably one that costs less than 30% of what they currently earn. (If your father’s income is extremely irregular, they may need to base their affordable rent on your mother’s income plus whatever he’s reasonably sure he can make each month.)

So instead of giving cash, you might give them a session with a fee-only financial planner (you can get referrals to planners that charge by the hour from Garrett Planning Network, at https://www.garrettplanningnetwork.com) or ask them to meet with a budgeting counselor at a nonprofit credit counseling agency (you can get referrals at the National Foundation for Credit Counseling, at https://www.nfcc.org). You can make these education efforts a requirement of any further financial help from you.

If they can’t manage a decent lifestyle on their incomes despite their best efforts, you may want to step in to help. But just as they weren’t obligated to hand you cash with no strings attached, neither are you required to dole out money freely to them.

Striving for tip-top credit scores

Dear Liz: You have done a number of articles on credit repair but have never told people how to raise a score into the 800s on the 300-to-850 FICO scale. How is that done? We make close to $100,000 a year, own four properties, have no debts except small mortgages on two properties, and have credit cards with high limits that we pay off each month, yet we can’t raise our score. What is the secret?

Answer: Your income and assets have no effect on your credit scores.

And there’s no benefit to having scores over 800. Lenders typically reserve their best rates and terms for anyone with scores that exceed lower benchmarks, such as 740 or 760. Furthermore, nothing in credit scoring is permanent — even if you vault over the 800 mark, you may not stay there.

If you want to play the game of trying to max out your FICOs, however, there are a few steps you can take. Make sure your mortgages and your credit cards are being reported to all three credit bureaus, since having both installment and revolving credit will help your scores. Continue to make all your payments on time. Don’t use more than 10% of your credit limit on any card, don’t apply for new credit, and don’t close any accounts. Finally, grow older. A longer credit history is a better credit history in FICO’s eyes.

Create a small emergency fund first

Dear Liz: Should I pay off my debts before I start my emergency fund savings?

Answer: It’s smart to put at least a few hundred dollars in the bank before you begin to pay down your debts. That way, if you face a small financial setback, you can tap your emergency fund and not have to add to your debt. But it doesn’t make sense to wait until you have several months’ worth of expenses saved before you pay debt, because that can take years to accomplish and you’d pay a fortune in interest in the meantime.

Liz Weston is the author of “The 10 Commandments of Money: Survive and Thrive in the New Economy.” Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon, No. 238, Studio City, CA 91604 or via asklizweston.com. Distributed by No More Red Inc.