Money and family…do they mix?
Money and family can mix as poorly as water and oil —or as seamlessly as water and ice. It all hinges on your specific family dynamics. In my career, I've seen many people underestimate how their role within their family ecosystem affects their finances.
I’ve seen clients grapple with guilt about not wanting to co-sign a loan or join a business venture with a family member. Conversely, some people dive into such commitments purely because of their relationship which sometimes leads to outstanding results.
These decisions often extend beyond financial considerations; they delve into relationship dynamics, potential guilt, and trust. When these situations come up, I urge clients to weigh what they are giving up against what they stand to gain. If the perceived benefits don’t outweigh the potential costs, it might not be a wise choice to mix your money with your personal relationship.
The costs involved can extend beyond finances. They can include personal peace, the relationship itself, and overall security. As a financial planner, I recognize that these situations are rarely black and white, there are numerous dynamics at play. Here are a few questions to consider before committing financially to a loved one and potentially risking your financial security:
Affordability: Do you have the money or resources? Are you in a position to take on additional financial responsibility and sustain your lifestyle?
Commitment: Are you able to dedicate your time and resources as requested? What is the expected time commitment? Consider the vision you have for your life; does assisting your loved one align with or affect your own goals and plans.
Opportunity Cost: What might you be missing out on if you choose this option? It’s essential to compare what you’re giving up with what you’re gaining. Having money in the bank doesn’t automatically mean you can afford to use it—consider whether those funds were designated for a specific purpose, goal, or future investment.
ROI: What is the potential return on investment (ROI)? Does the return seem insufficient compared to the upfront cost? ROI isn’t only financial. For instance, assisting a child through college doesn’t provide a monetary return, but knowing that you’ve helped someone achieve a successful future can be rewarding.
Responsibility: What additional responsibilities might arise? Are you ready, both financially and emotionally, to take on this added responsibility?
Relationship: Do you trust that all parties involved will uphold their part of the agreement? Can your relationship withstand possible ups and downs that may come?
Before making a final decision, it's important to check in with yourself and process any emotions that may arise. If you are a person of faith, consider seeking guidance from God. Matthew 7:7 reminds us that if we seek, we will find. Trust that God can provide the clarity and strategy you need to navigate any situation.
Navigating the intersection between your loved ones and finances can be complex. For many, the relationship may outweigh the financial aspect; however, it’s crucial to consider the impact on your financial health as well. Sometimes, preserving the relationship means being upfront about financial boundaries and capacity. If you choose to intertwine finances, ensure clear expectations and maintain transparency throughout the process.
The familial dynamic can amplify emotions and lead to decisions driven more by feelings than by logic. Seeking professional guidance can help you work through these complexities and make informed choices. Schedule a complimentary consultation to start building a successful financial plan for you and your family.
