How do you deal with a family member who time after time finds himself in a financial sink hole?
How do you best help? Is it as simple as writing a check?
It’s a bit more complicated than that and you can take a few important steps to help your family and safeguard your finances at the same time.
Giving financial assistance to family members
Here are a few steps I recommend:
1. Don’t put your head in the sand.
People don’t wake up stupid and they usually don’t wake up broke. You can see the signs of bad financial behavior years (and sometimes decades) before a crisis. Don’t wait until this person comes to you for money.
When you see someone you care about making dumb financial moves, understand that you may be the one left holding the bag. Don’t think the problem is going to disappear all by itself. If this person is on the road to self-destruction, it might be just a matter of time before that trouble lands on your doorstep.
This happened to a client of mine, Pam. Her son had great ideas – but somehow he was never able to get it together. Time and time again, Ron came to his mother to “invest” in his doomed projects. I showed Pam that she simply could not afford to continue doing that – regardless of what that meant to her son. That leads us to the next step.
2. Know your limitations
Even before anyone asks you for money, be realistic when you see trouble on the horizon. Get ready.
Don’t fool yourself into thinking that you’re going to get back whatever money you loan this person. He or she has already demonstrated financial irresponsibility and it would be silly to expect that somehow this person is going to magically get it together. Personal debt collection is ugly – especially if it’s your brother-in-law you’re trying to collect from.
If you do provide support, remember that this personal loan is a one-way gift. It’s money you’re NOT going to see again. Regardless of the promises you’ll get (and you will get plenty) don’t kid yourself. This money isn’t coming back to you. The obvious conclusion is to only give money that you can live without ever seeing again.
3. Set boundaries quickly, gently but clearly.
If you are the designated “Mr or Mrs Moneybags” in the family, you’re this person’s ace in the hole. Their meal ticket.
Time to cancel dinner.
Again, you don’t have to wait for this person to come to you with their hands out. The sooner you communicate the better.
Let them know what you see and how you feel. Don’t judge. But let them know what you are willing to do to help and what you are unwilling to do. That support should include talking things out in addition to any financial support. You might give this person the gift of personal responsibility by saying no which is invaluable but……
3. Don’t expect gratitude
If anything, you might get indignation. You are doing this person a huge favor by setting boundaries and by forcing them to start accepting responsibility for their financial behaviors. But they may not see it that way.
4. Know That Your “NO” Isn’t Going To Be The End Of The World
You cutting someone else off financially probably isn’t going to end with them being homeless. They may see it as the end of the world but it ain’t. Don’t fall into the guilt trip they will try to send you on.
Let’s use a worst-case scenario and say this person is forced into bankruptcy. It’s bad…but it’s not cancer. And you didn’t do it to them…they did. And did you know that you can declare bankruptcy and still hold on to your home? Don’t tell yourself you’re forcing them out on the street because you aren’t.
Have you ever been in a situation like this? How did you handle it? What was the outcome? Are you still on this person’s Christmas list?