Helping your family members out financially can be treacherous ground if you don’t navigate it properly. There is plenty of opportunity for resentment and guilt to grow, but it could also be an act of love and assistance that will leave both parties feeling appreciated.
Whether you’re helping your parents cover medical bills or giving your recently graduated sibling some money to get started, here are some tips to keep everyone happy when you give money:
Look at Your Budget Before You Give Money
First and foremost, you have to make sure you are in a good position to give money to your relatives. Be very clear on the terms: how much you will give, and how often. Will this be a one-time thing, or will you be giving money on an ongoing basis?
It won’t do anyone any good if you put yourself in a bad financial situation by trying to help someone else, so do not offer or agree to pay for anything beyond what you can handle reasonably.
Consider Whether Your Money Will Actually Help
It’s tough to say no to family, but sometimes offering help does more harm than good. For example, giving cash to someone who tends to blow through cash probably isn’t the best thing to do. Instead, see if you can pay for things directly, like medical bills or car repairs.
If they are financially responsible and are going through a rough patch, a little extra help can be a lifesaver. But if they are routinely coming back to you or others for money, it might be a disservice to them in the long run to offer more financial help.
When You Can, Give Money as a Gift
Maybe you were approached by one of your family members for money, or you’ve thought of helping them out with a loan to get through a tough time.
Loans for your family members can be very tricky. If you loan money, you are opening yourself up to being advantage of. And if it takes them too long to pay you back, you have to deal with the uncomfortable task of bringing it up whenever you see them and eventually resenting your situation.
Unless you feel very confident that this person will pay you back, it’s often better to make it a gift instead. Rather than giving a Christmas or birthday gift, offer to pay a bill, give a gift card to cover living expenses like gas and groceries, or simply write them a check.
If the amount of money you would be lending is too high for you to feel comfortable giving it as a gift, it might be worth reconsidering. When you lend money to others, you also run the risk of not getting it back.
Document Your Loan
If you opt to go the loan route, make it official. Include the official terms like how much will be lent and when it will be paid back. Make sure both parties sign it. Not only will this make things more official, but it will help both you and the relative you’re lending money to treat it like a serious transaction.
Remember Gift Taxes
In 2020, you can give up to $15,000 to an individual without having to file a gift tax return. Married couples can give up to $30,000. If you give more than those limits, you’ll need to file a gift tax return. That cuts down on the amount you can be exempt from in the federal estate and gift tax.
Ultimately, when it comes to offering financial help for anyone, go with your gut. If you can comfortably give that money and feel confident that it will help, go for it. If not, avoid giving money out of guilt or feeling like it’s expected of you because you are in a better financial position.
About Your Richest Life
At Your Richest Life, Katie Brewer, CFP®, believes financial resources and fee-only financial planning should be accessible. For more information on the services offered, contact Katie today.