It’s likely that you have someone in your family that handles their money in a way that can be characterized as bad, careless, wrong, or inefficient. They amass credit card debt, waste their savings, and undermine their own success. The biggest reason why people fail when it comes down to finances isn’t the lack of income, but mishandling money. soon enough, they get into money trouble. Feeling beaten down by stress makes it impossible to get a good night’s sleep, lowers energy levels, not to mention that it can negatively affect one’s self-esteem.
During times of financial distress, people turn to their loved ones for help. Nobody should be alone in their suffering. Sometimes, with no fault of their own, individuals find themselves in a hopeless situation, with lower incomes or without a job. Their problems may require outside help. This is where you come in. Don’t hesitate to lend a helping hand. Nonetheless, when dealing with finances, you should take some precautions before jumping in. Let’s see exactly how you can help loved ones in financial trouble without hurting yourself in the process.
If family members haven’t asked for help yet, don’t force the issue
So, your beloved family members haven’t reached out to you for help, but you know that they’re in a pretty bad situation. It’s important to understand that they might not want your assistance. They want to do everything on their own and don’t want to be pitied. Hard as it may be, you have to let your loved ones climb out of this difficult situation by themselves. You can’t help someone who doesn’t want to be helped. The only thing you can do is give those people space and be supportive. Who knows? They might eventually change their minds.
Most importantly, don’t force the issue or put pressure on your relatives. It can have the opposite result of what you’re expecting, so be careful. They should be able to maintain their pride without feeling embarrassed or obliged knowing that they owe you. Be an anonymous helper, if you can. It’s better to do something for someone anonymously. The giver can enjoy the secret and the receiver has the thrill of surprise. Leave groceries on the front porch or slip a note into their car. It’s a simple, practical way to help without causing tension.
Gift money if you’re in a financial position to do so
If your family members are dealing with a short-term cash flow problem, you can offer a financial gift; if you can afford to, of course. Basically, you can give as much money as you want, yet if you want to make sure that it’s tax-free, pay close attention to the amount. In Canada, for instance, there’s no such thing as a gift tax. More exactly, any resident who receives a gift won’t have to include it in their income. In the United States, it’s a completely different story. You can give up to $15,000 to someone in a year and you don’t have to deal with the IRS.
Figure out how much money you’re willing to give and don’t put yourself in financial jeopardy. It’s a very commendable thing that you want to help out, but don’t do it at your expense. Give smaller gifts over a longer period of time until the situation gets better. The money is a gift, not a loan, so make sure that your loved ones understand that. The last thing you want to do is to create an awkward situation. Make sure that the recipients know how much they’re loved and appreciated, so include a note. Use neat packaging like a box of chocolates or a jewelry box.
See if your loved ones want or need a co-signer
Maybe your relatives want to apply for a loan to help with short-term financial needs. This facilitates the management of finances. Personal loans are short term as opposed to business loans, which allow repayment over a longer period of time. Business loans in Canada can be for five, ten years, or longer. Let’s get back on track here. A co-signer becomes necessary when the person interested in obtaining financing doesn’t have enough credit history or they want to receive lower interest rates. If you agree to co-sign, you accept taking financial and legal responsibility for the loan in case the original borrower stops making payments or defaults. You don’t get any rights to the money that is part of the loan. By guaranteeing a loan for someone, you expose yourself to risk. You lose more than just a relationship.
Rather than thinking about the negative consequences, consider the benefits. You’re giving someone the chance for a new start, so the process can turn out to be rewarding. Your credit score might see an increase if the loan is paid off on time, but don’t count on it. Before you co-sign, get a good understanding of your responsibilities and how you’ll be notified if things happen to go wrong. If you don’t want to co-sign, don’t worry because there are other alternatives. Your loved ones can apply for a bad credit loan. While it may have higher interest rates, the money comes in handy.
When you lend money, proceed with caution
Lending money can create division and gives rise to animosity if your loved ones don’t pay you back. It’s a delicate situation. Lending money is one option, but it’s not the only one. You can babysit for their kids or clean the house while your relatives are at work. What you need to understand is that lending money completely changes your relationship. There’s no going back after that. Even if your loved ones repay the loan on time, the dynamics still change. If you have your heart set on this solution, at least approach the situation with caution.
When it comes to lending money, it’s best to put everything in writing. It may sound far-fetched, but it makes everything more organized. If your family members agree to the payment plan, discuss how the money will be repaid. Ideally, they should be transferred to your bank account. You should expect a slow repayment, just to be clear. Of course, you can’t demand collateral or interest payments and expect to maintain a good relationship. Things don’t work that way. If you’re married, make sure that your spouse is on board with the decision to lend money to your relatives.