How To Financially Support Your Loved Ones Without Derailing Your Plan

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Money is like a team sport; while your individual habits and practices matter, there’s always a bigger picture to consider (spouse, kids, siblings, parents, friends, etc.).

Even though you’re building wealth to support yourself and your immediate family, many people’s money goals extend to offering support to their parents, siblings, or other loved ones along the way. 

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 look at how you can make a plan to financially support your loved ones minus the sparks and drama.

First, Check-in With Your Goals

Giving money to family 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). However, these generations are also concerned about how that financial assistance will impact their financial futures. 

So, before handing out checks left and right, take a second to evaluate how giving money to family/loved ones fits into your financial life. 

It’s beneficial to consult your long-term goals before giving money to your family because you want to keep your financial house in order. It’s like the “help yourself before you help others” argument—you need to be on solid ground to genuinely offer the best support. 

Ask yourself,

  • Are you in a position to give the money? If you’re still recovering from pandemic-related setbacks, you may not have extra room in your monthly cash flow.
  • Would giving money hinder your financial progress toward other critical milestones like saving for retirement, building an emergency fund, or getting out of debt?
  • Is supporting your loved ones financially part of your long-term goals?
  • Is this always something you’ve wanted to do, or is it spurred by a pressing need?
  • How can you offer financial assistance in the most beneficial way (i.e., covering ongoing expenses, a one-time gift, etc.)?

Knowing what you’re able to offer puts you in the best position to communicate with your family about what you can do and why. 

Giving money to family is a big deal, and it could be a long-term commitment depending on their needs. Are you prepared for that? It’s important to be financially and emotionally ready to support your family in this way. Otherwise, it could lead to hurt and resentment. 

Understand Their Needs and Brainstorm Ways To Help

There’s no “right” way to financially support your loved ones. The best method for you and your family will depend on their present and future needs and your available resources. 

Before deciding how to best support them, you should talk through some questions.

  • What are the financial expectations on both sides? Is it ongoing, long-term financial support, or a one-time ask?
  • How much support do your loved ones need and are there others in the family who can help?
  • Where would your money/resources go the furthest? Is it helping them pay off a debt, covering a pesky bill, giving them a cheap place to live, etc.?
  • Are there other ways their needs might be met without affecting your finances? (i.e. helping them apply for government assistance, helping them find a good loan rate from a local credit union to consolidate debt, etc.).

Notice I’ve used the word “give” instead of “loan.”

From personal (and professional) experience, I’ve found it’s often best to structure payments to loved ones as gifts instead of loans. Approaching it from this vantage point helps you only give money you don’t expect to get back. It also takes the pressure off your loved ones, who don’t have to stress about paying you back either. Also, be cautious about co-signing any loans for family members since you will be responsible for paying that money back if they cannot make a payment. 

The most important thing about giving money to family and loved ones is being intentional. 

For example, it might be important for you to send a certain amount of money to your family every month. As your parents age, they could use that money to support themselves throughout retirement or whatever expenses they see fit. 

Some people prefer paying for specific expenses, like adding their parents to a cell phone, internet, cable, or subscription plan (introduce mom and dad to Netflix!). Others may want to pay for set costs like utilities or groceries for their parents each month. Assuming responsibility for some bills goes a long way toward providing meaningful financial support.

If a loved one wants to live with you, perhaps you’ll give them prorated rent or allow them to live there for free in exchange for helping out around the house (cleaning, meal prep, watching kids, etc.).

Don’t be afraid to get creative!

Work with your loved one to create a plan that works for both of you. Keep in mind that you may have to compromise depending on where you’re at. While you may want to send $1,000 home to your parents each month, it might not be in the budget just yet. 

But that doesn’t mean you can’t get there. 

How To Financially Prepare

If financially supporting your loved ones is a crucial money goal, you’ll need to prepare for it. Knowing how you want to help gives us a springboard for creating a plan to make it happen. 

An excellent option to consider is establishing a “family brokerage account.”

Select whatever financial platform you like (Betterment, Vanguard, etc.) and open a new account solely dedicated to supporting your family but in your own name. This can be an ideal solution because you’re not taking funds away from other goals—retirement, kid’s college, etc. Instead, it’s a separate account dedicated to this specific purpose. 

When there’s money in the account, great, you have the option to decide if and how you want to help. If there are limited funds, you may need to be more careful about the money you give. Setting it up this way creates natural boundaries and ensures that you aren’t jeopardizing your own financial needs. 

Depending on your other financial commitments, we’ll determine how much makes sense for you to contribute to the account each month. Since it’s an investment account, you’ll set yourself up to see greater returns than if you stored the money in a savings account. 

With the money in a separate account, you’re able to use it as you see fit. Perhaps you’ll withdraw money to help your parents with a costly surgery or other medical expenses. Or, you may want to help them with rent for a little bit if they struggle with making payments. 

A brokerage account could support one-time or recurring payments. Here, you have SO much flexibility. If they don’t need any funds for a given time, that’s okay; your money simply takes advantage of compounding interest. This arrangement offers peace of mind that you’re able to help your family when needed but that you’re not establishing a pattern of giving money.

As you consider how much money to give, don’t forget about the annual gift tax rules. 

In 2022, you can give up to $16,000 per individual per year. If you’re married, that number doubles. For example, you and your spouse could each give $16,000 to your mom in one year, totaling $32,000. 

If you exceed that amount, you’ll need to report it to the IRS via Form 709. Any amount over the allowed limits will come out of your lifetime exemption, which currently sits at $12.06 million ($24.12 million for married couples). 

Luckily, there are some ways to get around this rule. 

If you want to help pay for a family member’s medical expenses, you can write a check directly to the medical institution, and the IRS doesn’t consider that a gift. The same idea applies to educational institutions.

Create Healthy Boundaries

Contrary to popular belief, boundaries aren’t bad or selfish, even with family. Setting clear financial and personal boundaries with family and loved ones will help you create a well-functioning, long-term plan that works for both of you. 

So if you don’t have the financial bandwidth to help at a given moment, it’s important to do the hard thing and say “no.”

You don’t want to give away money you don’t have or commit to giving too much when you have a lot on your plate. Doing so could cause undue stress on your financial and personal relationships. You must understand your limits and properly communicate those limits with your family.

Be honest with yourself and your family about what you can do now and what you hope to do in the future. 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 (and sticking with) healthy boundaries makes what you give much more meaningful and purposeful. 

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