Money can be described as a team sport. While your individual behaviors and practices are important, there is always the bigger picture (spouses, children, siblings, parents, friends etc.).
Even though your goal is to build wealth for yourself and your immediate family members, many people also want to help their siblings, parents, and other loved ones.
Yet you’ve probably heard that mixing family and money is like oil and water with different opinions, expectations, values, and communication exploding like fireworks on the 4th of July.
It doesn’t have to be like that.
Here’s the thing:
Financially supporting your loved ones can be a beautiful and rewarding way to make the most of your resources…
If you do it with purpose and intention.
Let’s take a look at ways you can plan to financially help your loved oneswithout the drama and sparks.
Giving money is a common goal for many people. A recent GoHealth
survey found that a third of Millenials and Gen X’ers help their parents financially (and many also manage their parent’s healthcare). These generations are concerned about the impact of financial assistance on their financial futures. Don’t give out money without thinking about how it will impact your financial future.
It is a good idea to consider your long-term financial goals before you give money to family members. This will help you keep your finances in order. This is similar to the “help yourself before helping others” argument. You need to be on solid financial ground in order to offer genuine support.
Ask your self,
Are there any financial resources that you can give?
- Ask yourself,
- Are you able to give the money?
- What are you able to offer your family?
- Giving money is an important decision. It could also be a long-term commitment, depending on the family’s needs. Are you ready for this? It is important to be financially ready and emotionally available to support your family. It could cause hurt and resentment.
Understand Your Family’s Needs and Come up with Solutions
There is no one right way to financially support your family members. Your family’s current and future financial needs, as well as your resources, will determine the best way to support them. Before deciding how to best support them, you should talk through some questions.What are the financial expectations on both sides? What are the financial expectations of both parties?
How much help do they need?
Where can their money/resources go? What are their goals? Are they to pay off debts, cover a bill, provide a place for them to live or something else? Is there another way to meet their needs without having to impact your finances? (i.e. (i.e. Notice that I have used the word “give” in place of “loan”.
I’m a professional who has learned it is often better to give loved ones gifts than loans. This vantage point will help you give money that you don’t expect you to receive back. This relieves the pressure on your loved ones who don’t have any obligation to pay you back. Be cautious when co-signing loans for family members. If they are unable to make the payment, you will have to pay that money back.
- It is important to be intentional when giving money to loved ones and family.
- You might want to send a specific amount to your family each month. Your parents could use the money to help them through retirement, or for any other expenses.
- Some people would rather pay for specific expenses like adding their parents on a cell phone, internet or subscription plan (introduce dad and mom to Netflix!). Others might want to cover fixed costs such as utilities or groceries each month. You can be creative! ).
- Don’t be afraid to get creative!
Work with your loved one to create a plan that works for both of you. You may need to compromise depending on your situation. Although you might want to send $1,000 each month to your parents, it may not be possible to do so.
This doesn’t mean that you won’t be able to get there.
How to Financially Prepare
Financially supporting your family is a major goal. You need to be prepared.
A good way to start is to know how you’d like to help.
An excellent option to consider is establishing a “family brokerage account.”
Select whatever financial platform you like (Betterment, Vanguard, etc.) Open a new account in your name that is solely for your family. This is a great solution as you don’t have to take money from other goals such as retirement, college for your kids, etc. It’s an account that is specifically dedicated to this purpose.
If there is money in the account you can choose to give if you wish. You may have to be more cautious about how much you give if there isn’t enough money. This creates boundaries that protect your financial interests and prevents you from compromising your own financial security.
Depending upon your financial obligations, we will determine how much you can contribute each month to the account. It’s an
. This will give you greater returns than if the money were saved in a savings account.
With your money in a separate account you can use it however you like. You might decide to withdraw the money to pay for expensive surgery or other medical expenses for your parents. You might also consider helping them to pay rent if they have trouble paying their rent.
A brokerage account can support one-time and recurring payments. You have so much flexibility. You can give your family money to compound interest, even if they don’t require it at the time. This arrangement gives you peace of mind knowing that you can help your family whenever they need it, but not that you are setting up a pattern of giving.
Don’t forget the annual gift tax rules when you think about how much money you should give.
In 2022 you can give $16,000 per person per year. This number is doubled if you are married. You and your spouse could give $16,000 each to your mom over a single year, which would make it $32,000. If your total exceeds $16,000, you will need to notify the IRS via Form 79
. Your lifetime exemption is $12.06 million (or $24.12 million for married couples). Any amount above these limits will be taken out of your lifetime exemption.
There are ways around this rule.
If your family member needs medical treatment,
you may write a check to
and the IRS will not consider it a gift. The same idea applies to educational institutions.Create Healthy BoundariesContrary to popular belief, boundaries aren’t bad or selfish, even with family. You can create a long-lasting, well-functioning plan with your family and friends by setting clear financial and personal boundaries.
If you aren’t able to provide financial support at the moment, it is important to say no.
You don’t want to spend money that you don’t have and you don’t want to give too much when there are many things on your plate. This could lead to undue stress in your personal and financial relationships. It is important to be honest with yourself and with your family about your current and future goals. Maybe you’re not currently in a place to cover your parent’s rent, but you could help on a smaller scale, like paying a utility bill or sending home a little something each month.Talking about money with your parents and loved ones is hard.
But open and honest communication about money will make the situation smoother for everyone involved.
When it comes to family and money, never underestimate the power of compromise.
Creating healthy boundaries and sticking to them will make what you give more meaningful.
You might also like reading: