A lot of people are going through a difficult time financially so it might not be much of a surprise when you have to deal with family members borrowing money. With the health crisis sweeping through multiple industries putting the economy into a screeching halt, a lot of people either lost their jobs or have their employment on hold.
The stimulus package by the government is well on its way which can help a lot of people with their most immediate needs. Fortune shares that taxpayers who have their direct deposit bank account set up should be getting their money by mid-April. This amount can help households shelter in place for a few weeks to help flatten the curve of the virus.
However, there is still a chance of family members borrowing money during this trying time. This is especially true when they lost their jobs. If they are also in a hard financial place already even before the virus hits, they will be having a more challenging time now. They might not have many options to consider when they need money.
A lot of people are going through tight finances during this pandemic. It is a tough call if your family member is asking for some financial help. On one end, you might want to help the other person. This is especially true when you have a good relationship with them. On the other hand, lending and borrowing money between family members have a lot of gray areas that it is tough to navigate through it. Here are a few things that can help you out.
Keep your private life private
This step is something you need to think of at the very beginning to help manage the way your family members view you and your finances. If you go around telling everyone that you make more money than you need or boasting that you have so much money in your emergency fund or investments, they might begin to think that they can come up to you for financial help. You will really have a lot of family members borrowing money from you.
Practice keeping your private life private and just giving out general statements when asked about your finances. You are not required to tell family members how much you make in a month, what your investments are, or if you have money in your emergency fund. Your finances are a private matter which is best kept within your family.
Set up a giving budget
You might be dealing with family members borrowing money from you on a regular occurrence because you are in a position to help them out. It might be a case of having a successful business, having more than what you need, or simply having a good heart to help other people in need. These are some of the reasons why people close to you might come and ask for help. The fact that about 16.8 million people filed for unemployment according to Marketwatch can be one of them as well.
If you have the ability to help, you are in a unique position to engage and improve other people’s way of life. However, you should still proceed with caution. Too much of giving away money to people could send the wrong signals to people close to you. They might start to think that there is no need to persevere since they can always come up to you for help.
You might also find yourself in a tight financial spot one of these days. Once you look at your savings, you have no more left because you keep on giving it away. One idea to think about is to set up a giving budget. This is money you can stand to lose every month or an amount that would not have a big effect on your bottomline. You then use this amount when people start asking for help.
What to keep in mind if you will lend money
This pandemic has proven to be a tough financial crisis for a lot of people. You might be in good financial standing allowing you the chance to help family members borrowing money. If you do decide to help and give financial assistance, here are a few things you can keep in mind.
Lend but include guidelines
It is no secret that family members borrowing money seem to have an open-ended loan agreement with you as the lender. It is very rare that the lender imposes a definite date to be paid back. The borrower also usually does not offer a date to pay back. If they do, it is oftentimes a vague date providing little to no details about repayment. This is important especially if you are lending a big amount to family members. If you are, take note that amounts over $15,000 have to be reported to the IRS.
If you are lending a considerable amount of money, it is a good idea to put that agreement in writing. Like most documents, it just needs to have the amount borrowed, the date it was given, and the date it will be paid back. If you agreed on an installment scheme, put that in the document and get signatures to formalize it.
Do not give out cash
If you decide to lend money, it might be better to transfer the funds online or cut them a check. The only reason for this is that you have a record of the transaction. This financial record will be helpful down the road. It might take family members a while to be able to pay you back. The longer it takes them to pay you back, the more difficult it will be to recall the amount if you gave cash.
Situations might arise where you start talking about the loan and you both cannot recall the actual amount. You could be giving a number and they start saying it is way lower than that. If you have given cash, it will be close to impossible to recall the figure. It will be a totally different discussion when you transfer money online or give them a check. It will help also if you send them a short message where you detail the amount. This way, you both have something to go on when talking about repayment of the loan.
Identify other ways to help
It might not be what they immediately need but if you are unable to lend money, there are other ways to help. One is giving them time to sit down and go over their finances. If they are willing, they can show you their financial situation including their current income and expenses. Having a second pair of eyes looking over their budget might help identify areas where they can save.
You can both look at the expenses and help them decide which ones they can let go at the moment. If they are open to the idea of debt consolidation, help them identify reliable consolidation companies to help them. It is also a good idea to help them look for side hustles they can take up to help increase their take-home pay every month. Be cautious though because there are times that when people are borrowing money from you, they are not open to getting pieces of financial advice.
It is tough to have family members borrowing money at a time when there is a health crisis but there are ways to approach this. Remember that you have options on how you can help without putting your own finances at risk.