With the holiday season nearing full swing, your family time is about to be dialed up to the max -- which can be great on one hand, but a bit agonizing on the other. Because let's face it: For every relative you're glad to catch up with, you've got another one asking you uncomfortable personal questions -- and you may already be strategising how to emerge unscathed from being cornered by Great Aunt Martha. It's no wonder that psych pros see holiday gatherings as a legit source of stress for many of us.
This post originally appeared on LearnVest.
While we may not be able to offer up exit strategies for political debates or romantic queries, we can provide some suggestions for another hot-button conversation topic: your finances. For whatever reason, awkward money questions seem to be in full force during end-of-year family get-togethers, whether it's siblings who hit you up for cash or parental pressure over why you're not yet a homeowner.
To help you pacify meddlesome relatives and give your financial life a boost at the same time, we've offered up some strategies for how to prep for five common (and painfully awkward) money questions you might hear this holiday season.
When Your Grandmother Asks How Your Nest Egg Is Doing
Your golden years may feel like a lifetime from now, but older family members swear they will be here before you know it. And the truth is, they're kind of right -- so the earlier you start saving for retirement, the better.
But what to do if you're not exactly on track? Well, if you haven't started saving yet, it's time to brush up on the basics and get familiar with the ins and outs of various types of retirement accounts, such as an IRA or 401(k). Then explore which options may be available to you through work. If you have access to a 401(k) or other type of employer-sponsored retirement plan and haven't enrolled yet, you're missing out -- especially if your workplace offers any sort of match, which essentially translates to free money for you.
If you've already started saving for retirement, set up a goal to up your retirement contribution in the New Year. Maybe it's as small as 1%, maybe it's enough to meet the company match, maybe it's whatever amount you can cull from trying out one of these easy strategies. Whatever the amount, any little uptick could have a potentially big impact between today and retirement.
Then, when Grandma asks about your nest egg, you can fill her in on all the responsible things you're doing now to build your nest egg (but you can leave out the part where you tell her your balance).
When Your Parents Want to Know Why You're Still Renting
This one's a biggie, especially for renters transitioning into their 30s and beyond, but holding on to your rental status isn't uncommon among Millennials: The homeownership rate of people under 35 has been on the decline, reports NPR, dipping from 42% a decade ago to just over one-third now.
We know, you're likely to hear, "But you're throwing money away!" when you tell people you're not in a rush to buy. But homeownership shouldn't be something you dive into if you're not financially ready.
For starters: Do you plan on moving within the next five years? Have you snagged a stellar rental deal in a great neighbourhood? Would buying a home also translate to a long commute to work? If you answer yes to any of these questions, chances are it might make more financial sense to rent for the time being.
The down payment is no small factor, either. If you aren't able to put down at least 20%, you may end up paying private mortgage insurance as well as a higher interest rate, which raises your monthly payment and eats into your investment in the long run. (This cool New York Times calculator helps you crunch the numbers on various home-related costs so you can see when it would make sense to rent or buy.)
So be honest with your parents, laying out the ways in which renting is a better fit for you right now and how much better off your finances are as a result. (A big mortgage payment may have meant not being able to afford your plane ticket home, for example.) And if you are in the process of saving for a down payment, celebrate that by letting them know that you're specifically socking away your hard-earned dollars and priming your finances to fulfil your homeownership dream.
When Your Cousin Asks You to Jump on a Hot Stock
We've all got that one family member who likes to push the greatest investment opportunity over the holiday ham. Maybe it's the company that is bound to be the next big thing or the real estate venture that is sure to go through the roof. Whatever the opportunity, these conversations may end with: "Do you want to get in on this?"
Well, your answer will probably depend on a number of factors, including your appetite for risk, what the ultimate goals are for your investment dollars and the timeline for those goals.
But if you're like many people, you're probably not looking to make a quick buck through investing; rather you've likely got a longer-term goal in mind, like buying a home or retirement. In fact, we don't recommend you invest to fund a goal unless it's at least five years away because of the risk associated with investing (the shorter your timeline, the less time you have to potentially recover from drops in the market).
But if you think you're ready to dip your toes into the market, you probably shouldn't start with Cousin Dan's investment plan. First, get educated about the basics of investing, as how you invest can affect other areas of your financial life, such as your taxes. Then, see if you have all your financial ducks in a row. Have you started saving for retirement yet? If not, that should be the first goal you consider investing for. Do you have a plan to pay down your debt? Are you making good progress on an emergency fund? If yes to all, then you can start considering investing outside of a retirement account.
Already have an investment portfolio? Good for you! You could ward off Cousin Dan by telling him that you prefer an investment strategy that isn't based on the "hot performance" of one or two stocks, preferring to stay diversified instead (meaning your investments are spread out among different asset classes and categories to reduce risk). You can even go a step further and fill him in on the type of mutual funds or ETFs you invest in and how they provide you with exposure to many different types of companies.
Maybe that will encourage him to keep his hot tips to himself.
When Your Younger Brother Asks You for a Loan
Nothing makes a holiday dinner quite as awkward as getting hit up for cash by a family member. This potentially sticky situation can go any number of ways. The best-case scenario is that you help a loved one through a tough time while also keeping the relationship -- and your own finances -- intact. But what if the family member in question fails to make good on the loan?
Navigate the situation by getting honest about whether you're in a position to be giving out loans in the first place. Even if you have total faith that the recipient will pay you back over time, draining your savings only puts yourself in a potentially hard financial place.
If you're able to take on the responsibility, pinpoint how much you're comfortable offering. In other words, lend only what you can afford to part with. From there, establish a clear payoff timeline and put the agreement in writing. The dessert table probably isn't the best place to iron out the details, but make no mistake that these terms are must-haves when lending money to family members.
If the idea of loaning cash to little bro makes you uncomfortable, trust your gut. Politely saying that you can't afford it right now is better than a ruined relationship down the line.
When Your Aunt Wants to Know if You're Ready for a Rainy Day
Well-meaning family members seem to come out of the woodwork during the holiday season, so if Great Aunt Martha is asking how well-stashed your emergency fund is, it's probably because she really cares. If the question makes you uneasy, though, you've got to ask yourself why.
Is it because you're not quite sure where you stand? If your emergency fund isn't sturdy enough to see you through an unexpected job loss or unforeseen pop-up expense, it may be time to re-prioritise your financial goals. A good rule of thumb is to have anywhere from three to nine months of take-home pay socked away, depending on your situation. Building this cushion is vital to your financial well-being, so at the very least, you should have at least one month saved before you get aggressive about your other money goals, whether it's saving up for a European vacation or finally paying more than the minimum on your student loans.
Not sure where to park your emergency fund? Look for a high-yield savings account so your cash can earn some interest until you have to dip into it. Generally, online savings accounts offer higher interest rates because there's less overhead involved than with a brick-and-mortar bank; just be sure to check if you have to meet any qualifications to get the best interest rates, such as maintaining a minimum balance, or whether the account has any restrictions, like the number of allowable monthly transactions. And consider choosing a savings account that is different from your main checking account, so it won't be so easy to access that cash. Once you've opened an account, kick your savings into overdrive by setting up an automatic monthly deposit from your checking.
Then, when Great Aunt Martha gives you the annual $10 she's been gifting you since the fifth grade, you can tell her exactly where you'll put it -- into your rainy day fund.
Image by CSA Image/Mod Art Collection via Getty.