Family Wealth Series: Let’s Talk About How to Budget for Big Expenses

A man reviewing paperwork helps his daughter prepare a budget.

Learn how to talk to your grown children about budgeting for a house, a dream vacation, or another big milestone to help them become more financially savvy.

Parents want to see their children achieve independence. In high-net-worth families, success often hinges on passing along financial wisdom. And one of the first—and likely most important—pieces of wisdom to dispense is how to create a budget, which can help with everything from buying a house to launching a business.

“This can help teach them to stand on their own two feet and to be independent,” says Nathaniel Jones, Senior Wealth Planning Strategist for Wells Fargo Private Bank.

Here, Jones recommends a few conversation starters for parents and grandparents who want to teach what they know about how to create a budget for big expenses.

Take a moment to separate needs from wants

Separating needs from wants is an important step in creating a budget because it can identify areas where your children could cut costs. For example, Jones says you should consider talking about identifying emotional triggers that may cause impulse buys versus planned purchases. Ask them: Do they make impulse purchases when they’re feeling down or stressed? Do they celebrate getting a raise with a big purchase? What can they do instead?

A modest amount of impulse spending can be harmless. But helping draw attention to it may be eye-opening for your adult children. Explaining how they should make a budget and stick to it while keeping their main goals in mind can help keep impulse spending at bay. “Just avoiding that tendency to impulse shop may be enough to help cover the costs of big-ticket expenses,” he says.

Explain the value of closely tracking income and expenses

Ask your children or grandchildren to review a few months’ worth of bank statements to analyze their spending habits and see if patterns—productive or otherwise—emerge.

“Before they can get on a path toward budgeting for an expensive purchase, they need to understand where their money is currently going,” Jones says.

Consider recommending online budget tools they can access on their mobile devices (about a fifth of millennials use only their smartphones to access the internet, according to a Pew Research Center study). Customers who use Wells Fargo Online® banking, for example, can set up an online budget to chart monthly expenses with information taken from their actual spending history.

Remind them to build a robust emergency fund

Before starting to save for anything else, Jones recommends that young adults set aside money to cover an unforeseen event, such as a job loss, a major illness, or an expensive repair. “By setting aside three to six months’ worth of living expenses, they can enjoy the feeling of being financially self-sufficient instead of needing to borrow money from their parents or finding creditors should an emergency arise,” he says.

Explain how you were once in their shoes

Share your experiences with your kids! For example, tell the story of how you created a budget for your first big-ticket item or the sacrifices you made to invest in the launch of your business. Your children will appreciate hearing about your experience, and that the payoff was worth it, Jones says. “Many of our clients are wealth creators who came from modest means,” he says. “I had a client who recently sold a business for $20 million, but he has stories about the creative ways his family stretched their grocery budget when they were barely making ends meet. Sharing those stories is a way to instill those family values.”

Consider professional guidance to help jump-start the conversation

Jones acknowledges that having a discussion about money with adult children may feel uncomfortable. If that’s the case, ask your financial professional to help facilitate and moderate family discussions about budgeting for big expenses — or other personal finance matters.

“It can help if the information comes from a third party rather than a parent,” Jones says. “There’s some real objective value there.”