Family Money Management - Advice on Borrowing and Lending Within Families
by:
BMA Editorial Team A
Articles on family money management advice usually dispense information about spending, saving, and investing. But there is another part of money management in families that is important and that is lending and borrowing.
If you have ever loaned money to a family member and they failed to paid you back, you are undoubtedly familiar with the damage to personal relationships that can result from borrowing and lending of money between family members.
It is only natural that family members might want to help each other out by lending money if they are able. After all one of the functions of a family is to share resources. The complicating factor with money lending is that there are emotional relationships involved that can be affected by the emotional tensions created by the loan.
Sometimes the tension over defaulted loans is so great that family relationships are permanently damaged.
A finance company or a bank has no hesitation in going after the collateral for their money when someone has defaulted on a loan, but then they really do not want to ever see that person again. The same cannot be said for your family. Are you really prepared to repossess your son's electric guitar if he defaults on your loan? what about repossessing your adult child's house if they default on the mortgage payment?
Here is some family money management advice to help you avoid emotional baggage that can result from lending money within the family structure.
1. never loan money that you really need (or want) - in other words if you loan money to a family member you must be prepared to see that money disappear, forever, so that you can continue your relationship with that person. If you are not prepared to lose the money do not lend it. This has to be the prime directive for money management advice within families.
2. assess risk - it doesn't matter who the family member is who wants the loan, you must assess the risk. Why would you lend money to a person who has already been turned down by a bank? Does it make sense to loan money to a parent or an adult child who has no way to pay you back, or has a history of poor money management? Every borrower will promise to pay you back. They have to tell you that. If they said, "Oh and by the way, I do not intend to pay the money back." they know you will not come through with the loan.
3. never co-sign a loan - when you co-sign a loan you are taking on the financial risk but you do not have the financial asset of the collateral. In case of default on the loan the lending institution will come after you for that loan and you will be liable for the balance. That is what a co-signing responsibility is. It is extremely risky to have a financial liability with no collateral to show for having borrowed the money. When you cosign a loan so you child can be a car you have the liability for the loan but the child owns the car. You have nothing except the liability of the loan if your adult child defaults.
4. give your adult children money - give freely and regularly for birthdays and gift giving holidays. Give what you can afford but give freely and without conditions. This is a gift not a loan. If you have to say no to a loan request you cannot be accused of being cheap or tight with your money if you give freely. You have the right to say no when asked for a loan and you have no obligation, duty, or responsibility to lend money to your adult children or any family member.
5. formalize all loans with notarized statements - Let's say your spouse has convinced you to help out your brother-in-law. If you can afford it, and if you think he has the ability and the desire to pay you back and if you are prepared to never see that money again go for it, but formalize it with a notary public (at your brother- in-law's cost). The process of notarizing formalizes the arrangement, spells out the terms of the loan as well as the consequences of default. Remember however, that the ultimate consequence is still the same so please be prepared to never see that money again (See family management advice rule number 1.
These 5 rules for family money management will help you to control your own money and reduce the opportunity for money to destroy your family relationships.
About the Author:
Beverly Hansen OMalley is a nurse who is fascinated by the various influences on organizing behaviour and the influence of an organized environment on human health and well being. She explores these influences at
http://www.organization-makes-sense.com
No. of Times this article has been viewed :
1187
Most Recently Published Money Management Articles as of
|
|
Home Equity Loans Made Easy by 4 Simple Steps
by
Joycelyn Crawford
Convincing a lender to approve a home equity loan is not always easy when bad credit is a part of the equation. But there are 4 simple tips that applicants should know to achieve success.
|
How to Legally Save Thousands of Dollars a Year in Taxes
by
Robert Neuberger
Someone once remarked, "Next to being shot at and missed, nothing is quite so satisfying as an income tax refund." There's no question that saving money in taxes is high on everybody's list of financial priorities, especially self-employed business o
|
Financial Literacy 101: Cash Flow Analysis
by
Edwin Malipayon
The famous business author/investor Robert Kiyosaki always emphasizes that it's imperative for a person who wants to be rich to have financial intelligence. For how will you get rich if you don't know how to manage your money?
|
When to Get Payment Protection
by
BMA Editorial Team B .
If you have a credit card, then it is likely that you were offered or took out payment protection on the card. Although many people take out this insurance, there are few people who can benefit from it, and often you are just wasting money by having it. However...
|
How to Save Real Money When Bargaining With a Private Seller for a Used Car
by
Bruce Hokin
Apart from your home, this can be one of the largest financial expenditures and therefore one of the most important to your financial well-being. If you can learn a few rules and remember some proven tips then this can be an enjoyable experience.
|
Learning Effective Money Management
by
Mika Hamilton
The most common misconception that most people have about the wealthy is that they always drive around in fast and fancy cars, take lavish vacations, and live on large estates. While that may be true of some people, but the majority of the wealthy live normal lives and go to normal jobs.
|
How to Resolve Money Problems
by
Saleem Rana
This article will define "money resistance," identify some causes, and offer a way to overcome it.
|
Look Before You Spend and Think Before You Splurge
by
BMA Editorial Team 3
There is always pain in prudent money management. Most of this pain is inflicted by unexpected expenses. The best that one can do is to put away all one's savings in a bank for the future and try to not to go overboard with one's spending.
|
How to Choose the Most Beneficial Bank Account Option
by
BMA Editorial Team 3
As we begin to earn salaries, we come to realize that we need to make our money grow. So we look forward to either investing our money in stocks and shares or depositing it in a bank. There is great joy to be gained in watching the money grow in multiple folds every year.
|
Opening Your Doors to Flexible Bank Accounts
by
BMA Editorial Team 3
Along with a bank account comes the feeling of being rich. At least, after one has acquired a bank account of one's own, one can become more independent. However, before one opens a bank account, one must take certain precautions to ensure he is approaching the right bank.
|
Say What You Need to Say
by
BMA Editorial Team 3
As money managers we take in assets with the hope that the capital we've been entrusted with will grow, by dint of our efforts. Staying in touch with frequent and direct communication helps us manage the inevitable separation anxiety...
|
Most Important Rules of Money Management
by
BMA Editorial Team 3
The lack of money is often not our problem, it is the way we spend it. Wealthy people tend to spend money on things that increase in value or provide them with a return on their investment.
|
Teaching the Concept of Saving to Kids: The Best Lesson for Money Management
by
BMA Editorial Team 3
A question generally arises as to why you should be teaching kids about money when they are young. Ever spotted your kid leaving that costly computer game you bought for him lying on his bedroom floor, just waiting to get trampled on?
|
Why Choose Money Market Funds?
by
BMA Editorial Team 3
While the potentially higher gains you can get (and the relatively low risk you undertake) can bode well for the diversification of your portfolio and the buffering of your assets against devaluation and inflation, there are a few other advantages that come with this type of investment.
|
Why are Brokerage Firms Essential?
by
BMA Editorial Team 3
Do you want to have a "nest egg" to take care of your family after you're gone? Do you need a superannuation fund? Do you want money for your kid's university education? Then a brokerage firm is the place to go.
|
PRO FOREX ROBOT
Discover the Secret To Making Profitable Trades Over 86% Of The Time... Absolutely Mind-Blowing Strategies!!!
|
|
|
Search for ebooks on Management & Business