Looking Out for #1
by April Borbon
When Your Friends Struggle
Those Who Give Too Much
Is Lending to Your Child Worth the Risk?
When someone else's financial ship is sinking, do you let them take you down as well? Being the caring, helpful people we are, many of us see a need and immediately try to fill it without thinking through the consequences.
How many times has a friend or relative called you with an urgent tone in their voice needing a loan now? How many times has your child wailed plaintively for the most expensive tennis shoes, the newest cell phone or the latest jeans? Below are ten tips for dealing with the financial burdens that others want to foist upon you.
- Don't co-sign for a loan. There's a reason your friend/son/boyfriend or relative needs a co-signer. If their credit was so great, they wouldn't need a co-signer to start with, so don't make their previous financial irresponsibility your future burden.
- Don't react immediately. If your sister, who never pays you back, calls and, tearfully, begs for loan number 37, don't immediately go into Florence Nightingale mode and automatically come to her rescue. Often our first emotionally reaction is not the wisest. Make it a policy to think on all major financial decisions for at least a day before deciding on what to do.
- Don't loan more money than you would be happy to give the person as a gift. In fact, for anyone other than a person who does pay you back in full, on time and as agreed, any money you give should be a gift with no strings attached.
- Don't get tangled up into an extended contract for someone else. Anyone who's had the surprise $700 cell bill from his or her teen knows what I'm talking about. Although you can get better rates for a contract cell phone, the wisest course of action when you need to provide a phone for someone is to get them started with a pre-paid cell phone. This way, there will be no surprise bills, and when they run out of minutes, it will be their responsibility to refill the card.
- Don't feel guilted into making any financial decision. Whether it's the convincing telemarketer, your groveling child or a charming significant other, anytime your initial reaction is guilt, your gut is warning you that you are going down the wrong path. Don't do it.
- Do be straight up with people who ask you for a loan, to co-sign, or for anything else you do not want to give them. You don't have to be cruel (lecturing them that if they stopped eating out every day, they wouldn't need your money) or evasive (not saying yes, not saying no, actually not calling them back at all); saying "no" is answer enough.
- Do make suggestions to help the person in other ways. While it may fall on deaf ears or they may roll their eyes, doing what you can to help without putting yourself in a precarious financial position is the right thing to do. Offer to help them with their budget, send them great links such as the "Dollar Stretcher" or "Freecycle", or suggest credit counseling. This may do more to help them in the long run than if you just hand over your cash.
- Do keep your financial status between you and your CPA. If people think you're "loaded," heard that you just got a windfall or know that you "always" have a lot of cash on hand, it puts you in a bad position. People will come out of the woodwork with pleas for your financial assistance and it could possibly mark you as a potential crime victim.
- Do make decisions based on fact, not emotion. If a friend is in a bind, hardly ever asks you for anything, always pays you back and you can easily loan them the money they request, go ahead. If on the other hand, your brother asks for a $7,000 loan and you know there is no way he will ever be able to pay you back, don't do it.
- Do resolve that your financial security takes precedence over all else. If a friend won't talk to you any more because you won't loan them a few hundred dollars, hello wake up call, goodbye false friend. If your teen's insistence/whining/begging makes you buy them a new Xbox game instead of paying the electric bill, realize that you missed an excellent opportunity to teach your teen an important financial lesson, and your financial priorities could quite possibly make you homeless. Your financial security is one of the most important things you can do for yourself.
Everyone makes financial decisions based on a number of factors. We've all had good financial outcomes from the decisions we've made and bad outcomes as well. The point is to use what you have learned, and through the experiences of others, to keep yourself and your family financially safe and sound.
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