At Magenta we often talk to clients who want to help their family with financial issues – it might be paying care costs for elderly parents or helping children onto the property ladder.
By working together we can often find ways to include family help in their budgets. It’s possible to make financial gifts to your family without sacrificing your own future, and we often recommend it instead of lending money to relatives and then dealing with the impact on your relationship if they can’t, or won’t, pay you back.
Put your oxygen mask on first before helping others
Just like they say when you’re on a flight: “put your oxygen mask on first before helping others.” You cant help anyone else if your own financial position isn’t strong enough to look after yourself first. Being certain of your own financial security for the future should be your priority.
If for example; you put off saving for your own retirement, to provide financial support to a relative, the next generation is going to have to do the same for you. Getting your own finances in good shape will put an end to the family finances merry-go-round.
Set a “family help” budget
If you’re meeting your monthly expenses and have a robust financial plan for your own future which means you will be secure, happy and can pursue your passions, you should then know exactly what you have available to gift to family. You can’t pour from an empty cup.
Regular gifts can take many forms (and, of course, you can adjust the amounts as your situation changes). You can do things like:
- Gift a set amount of money each month for them to use as they choose
- Hold an amount in savings to help in case of an emergency
- Pay for certain specific expenses, like groceries, phone bills, utility bills, or car insurance
- Even small gestures like adding your relative to family sharing plans for their mobile phone, Netflix and Spotify, can help those on a limited income.
Non-financial ways to help
If gifting money isn’t possible, there are still lots of ways you can support your family. You can give older relatives rides to doctor’s appointments, invite family over for meals or take a meal to them, or help out a sibling with young children by offering to baby-sit for no charge. Never underestimate the power of giving free tech support to your grandma! The gift of your time is truly valuable.
When to say “no”
- Sometimes, giving money to a loved one ends up enabling unhealthy behaviour. If your family member suffers from a spending, gambling, or drug addiction, giving them money will just keep them on that dangerous path. You can help by, say, paying for therapy or rehab, but simply giving cash is not helpful.
- Giving too much money to very young people can destroy their work ethic and make them lazy. Encourage children to earn their pocket money. Simple tasks like setting the table and clearing leaves can teach even very young children the value of money.
Warren Buffett famously said, “Leave your children enough money so they can do anything, but not enough that they don’t have to do anything.”
- When you disagree with how the money will be spent. For example, your relative claims to need help to pay their mortgage, but after you give them money, they go on holiday instead. You can make sure your money goes to the right place by sending it there yourself (eg: to the mortgage company.)
Sadly there is little you can do if a family member insists on being financially irresponsible.
If you would like to know whether you can afford to help a friend or family member, please do not hesitate to call us for a friendly chat.