For some of us, helping friends or family financially can be an obligation that we gladly fulfill. But, you shouldn’t allow frivolous requests to derail your own financial goals.

So, when should you consider helping a loved one financially?

In this video, Sabrina LaFleur, Certified Financial Planner™ professional with LearnLux discusses what to consider when supporting friends or family financially.

You'll learn:

• How to handle requests for financial help
• What to consider when loaning or gifting money
• Strategies to stay on track for your own financial goals

Scenario 1

Young Adult Niece: Hi, Auntie! Sorry to bother you again but I’m at this pop-up shop and...well, it’s kind of a long story, so could you just send me a hundred dollars? Like, now? I promise I’ll pay you back...next month.

In this situation, be protective of your hard-earned savings. Here's a sample of what you could say.

LearnLux Member: Sweetheart, I’m sure you found something you love, but I'll need to better understand your budgeting strategy before I can feel comfortable giving you any more money. I’m happy to help so let’s talk when you have the time. Sorry. Gotta go honey. Grandma’s calling.

Scenario 2

LearnLux Member: Hi Grandma!

Grandma: Hey baby. I hate to bother you but I need $5,000 to replace this ole air conditioning unit over here and I just don’t know what to do. The man said something about applying for some credits. Now I don’t know what that means but I know you’ve always been responsible with money, so can you help me figure this thing out? Now what do I need to do cuz you know I’m on a fixed income?

In times such as this, a little strategy goes a long way.

If a reasonable financing option is available, help grandma determine how much she can afford to pay each month in order to pay it off within a fixed period of time.

Figure out how much you can contribute on her behalf. Just be sure neither of you are over-extended so you don’t run the risk of missing or having to skip payments. The goal is to figure out how you can help without tapping into your own savings reserve or overcommitting.  

LearnLux Member: Grandma, I’m more than happy to help. Let me look at my budget and see what our options are, then I’ll come up with a plan.

Develop a strategy

Before you commit to anything, develop a strategy.  Decide on the terms of your support and be clear about your intentions when giving it.

Are you giving a gift or a loan? If it’s a loan, it's totally acceptable to document the terms of the loan, including an interest rate, and have the borrower sign a contract that acknowledges that they agree to those terms. 

Keep in mind, a wise person once said “you shouldn’t loan any amount of money you can’t afford to lose” because those family loans can have a way of morphing into gifts sometimes.

Other ways to help

• Could they live with you rent free temporarily? Or, borrow your car to save money?
• Do they have a skill that you’re willing to pay for?
• If you’re a LearnLux member, you have access to guidance from LearnLux planners for your family as well as yourself, so you can even schedule a planner call for your loved one to help them build a financial strategy that works for them. 

Planning to financially support family

If you’re not supporting family right now, but you anticipate the need arising down the road, treat it like a financial goal, just like building your emergency savings.

• Open a dedicated savings account for future family support
• Decide how much of your extra cash can go toward this goal each month then
• Contribute to it until you reach an amount that you think is enough to support your family if and when the need arises (Don’t forget to add a beneficiary to this account!)
• You can also consider purchasing a life insurance policy to provide a lump sum of money to a family member if you die prematurely
• If you have assets you want specific family members to receive when you die, make sure your will is up to date with who should get what. 

These are just a few ways you can be prepared to help friends or family without sacrificing your financial wellness.

For more tips, be sure to check out our lesson on Supporting Family in your LearnLux app.