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Lending Money to Family Members: Yes or No!

Lending Money to Family Members

Should You Lend Money to Family?

A loan is an investment, and you need to be sure that lending your hard earned cash to others doesn’t put your finances at risk. Dave Ramsey says, “don’t do it! People who let family members borrow money have their hearts–not–heads in the right place.

When we love people, we want to see them succeed, and we want to lend a helping hand. Strong emotions can quickly derail the best of intentions when dealing with family or close friends.  As a result, when family members come to us for a loan, we empathize; thinking about how we would feel having to ask for cash. And, if life got tough for us, we would expect others would have our back and help us! But that is not always the case.

Is It Safe?

It’s best to use caution when lending money to family. And it is wise to determine if the money is a gift or a loan. A loan should have requirements or agreements regarding the dollar amount and the payback schedule. The IRS allows $14,000 as a gift among family members so that a couple could give a family member $24,000 ($14,000 apiece). And theoretically, you do not pay a gift tax unless more than $5.23M is handed out over the course of your life. If you elect to loan the money, it’s best to set the interest rate, along with a payment plan for tax purposes.

Is it always the same person who needs help? Or do you have multiple requests from both sides of the family? If you are “the bank of choice,” you may need to re-think how you help relatives. In today’s turbulent economy, many older Americans are loaning money to their children. But is that the right call? Essentially, anytime someone asks you for money, it is fair to ask, “why do you need the money?”

Does the Loan Empower or Enable?

When an adult child relies on Mom and Dad to come in and save them from the latest crisis, but the root of the problem is overspending, or under earning, the parent becomes an enabler. This habitual pattern of letting other people take care of one’s careless financial choices, will never stop. It is important for all parties to learn a new set of habits. By clarifying the request for money without emotional turmoil, parents maintain enough money to retire and adult children will become more independent and began making more intentional choices.

On the other hand, a valid need such needing help with tuition can boost the earning power of a graduating student. Or lending money for a substantial down payment to purchase a house can provide a safe opportunity to invest the future. Providing the funds for a loved one to create a better life can be empowering!

Shall We Shake on It?

Take time to talk about the obligation and requirements of borrowing money. Prepare a formal agreement defining the amount loaned and details for repayment. Putting the financial commitment on paper gives the transaction more weight – often resulting in a positive outcome. The majority of people that sign a written contract are much more inclined to fulfill that agreement. For more personal finance info: Follow the Money Nerve 

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Put the Cold Freeze On Shopaholic Spending

 

Put the cold freeze on shopaholic spending!

This is a challenge for all of us who battle overspending on the latest trends:

You May Say

I really want to own a home, not just an ordinary home – but a gorgeous one that I LOVE! But with a credit card in your wallet that has a growing balance, it won’t happen. Making small changes to your spending habits will free up more cash to invest in your bigger life goals. Owning a home is more important than having every color of the newest designer shoe or “tricking out” your 1969 Dodge Charger.

Fear Can Hold You Captive

If the only thing keeping you from cutting up your credit cards is fear that you might desperately need them in an emergency, this tip is for you. Using credit cards to manage your daily budget can quickly lead to high monthly bills – with little cash in the bank. Making minimum payments maintains your credit standing, but will never make a dent in the outstanding balance. This habit is one of the universal recipes for long-term debt.

Deep Freeze Technique

Here’s a simple solution! Fill a large container half full with water, and put it in the freezer. Wait twenty-four hours, put your credit cards in there, fill it up with water, and place it back in. The result? A giant ice cube with credit cards stuck in the middle. The benefit? You have set yourself up to be more intentional with your financial choices. And, you still have your cards in the event of an emergency. You have put the cold freeze on shopaholic spending!

Plastic vs. Cash

Many Americans are spending far too much of their “perceived money” with credit cards. When you use the cards for unnecessary purchases, your shopaholic spending habit places more value on “wants” rather than long term needs. Put your money to work for value-based decisions. You need to add a saving habit, and lower card balances to ensure that you can handle costly emergencies. That’s why this easy concept works. Instead of cutting up our “plastic,” you put the cold freeze on those cards.

By freezing credit cards, you still have a line of credit, but it’s harder to use.
The best part: It’s an ingenious and effective psychological trick to get yourself out of the plastic mentality.

Now, emotions aren’t driving your spending habits. You are making a conscious choice to manage your money.

Instant Willpower

Freezing several lines of credit gives you instant willpower, even when you are blindsided by emotional impulses. Now, if you feel the urge to use credit, you have to wait until the ice melts. Hopefully, during that time you may come to your senses and realize you don’t need one more “widget.”

Try it! Let me know how it goes.

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Easy Hacks For A New Financial Habit

The Money Nerve

Easy Hacks For A New Financial Habit

Today is the best day for starting a new habit. Try these easy hacks for a new financial habit. You may have decided that it is time to do “things” differently, but the thought of making lots of significant changes at the same time can be overwhelming. Let’s break it down to make it easier to stick with a new mindset.

Keep It Simple

Let’s say you have decided to start an emergency fund and your long-term goal is to save three months of salary. When thinking about such a big hairy goal, it would be so easy to admit defeat before you ever started. So, take $50 and open that savings account. Tell all your friends that you are working on saving more money. When you talk about your goals, you plant the idea more firmly in your head.

Now automate a small amount of money, how about $25, to be directed into this new account with every paycheck. You will be surprised at how quickly your account will grow, and how little you miss that small amount you may have been spending on “junk.”

Starting with small steps makes a change of financial habits easier.
One glass of water a day. One extra vegetable. Three pushups. One sentence of writing a day. Two minutes of meditation. Voila! You now have a habit that lasts.

Keep Your Focus Positive

We all know a friend or colleague that seems to be “practically perfect!” They work out every day, eat healthy, volunteer at the local shelter and blog about their good deeds. It’s easy to compare yourself to others and begin to tear apart all the good work YOU are doing.

Keep your positive attitude; you are making one small step toward a more positive outcome.
Only you can make a personal change. When seeds of doubt begin to grow, you need to squash those negative voices that pop into your head; demanding you to quit, taunting you with past failures or demoralizing you with doubt and fear. Shove those thoughts into a box and mentally throw the box out! Embrace your new habit and nurture your small wins.

Keep It Real

Every week or two, hold yourself accountable and move forward a few steps. If you didn’t do as well as you wanted, jot that down and try again with a slightly different approach. Did you spend your “emergency fund” money on a movie and popcorn? Next week, add fifty percent more, you will still be ahead.

Did a great job of saving each paycheck for the past month? Tell yourself what an awesome job you are doing. Acknowledge your good work, reward yourself, and enjoy the success. Share your success with others, it may motivate them to start a new habit too. It often takes less time to create one simple habit than it does to make excuses for your inability to change.

For insight and motivational tips to create a healthy relationship with your money, AND for easy hacks to develop a new financial habit – sign up for the monthly Money Nerve newsletter.

You can do anything for one month!