One morning, I checked my phone after I got up to get ready for work as I always do. I had 3 missed calls from one of my uncles. I knew what was up right away. Years ago, earlier on my financial independence journey, I would have panicked. When relatives ask you for money, things tend to get stressful and frustrating. Nowadays, i still don’t look forward to these calls, but at least I know how to deal with them.
I have a lot of relatives, and I love them all. Unfortunately, some of them never quite figured out how to handle money despite having decent paying jobs. They buy new cars on a regular basis, travel more than once a year; some of them even own a few high maintenance pets.
On more than a few a few occasions, they have come to me asking for help with issues ranging from utilities to college tuition. I always felt annoyed by the fact that they are in this situation due to their own poor choices, but the problem is that when they ask for help, they actually are in trouble. That makes it difficult to ignore them or try to talk sense into them. When you’re in serious financial need, the last thing you wanna hear is that it’s your own fault. That would be like a doctor telling a patient with a heart condition he had too many pizzas in his twenties.
On one hand, you want to help the relative in question. These relationships matter and money is the easiest and most common way to put them in jeopardy. On the other hand, you can’t help but feel some kind of discomfort towards the fact that your money could be put to much better use. Not to mention the inevitable question of “how much is too much”. Here are some of the rules I established for myself when it comes to helping relatives.
1) Have a set amount each month dedicated to giving
I set up a sinking fund nicknamed “generosity” and every paycheck, a certain amount automatically gets deposited in there. As a result, I always have some type of fund available for helping relatives and I don’t have to jeopardize my own plans when someone in need calls me. Obviously, spending more than what’s in this account is out of the question.
2) I don’t give out loans
I’m not a bank, even less a subprime lender. The way I see it, I can either help you or I can’t. If I feel uncomfortable gifting you a certain amount, I’m also not going to let you borrow it from me. People that are constantly in need of help to make ends meet have a habit of defaulting on their debts. If I have $500 dedicated to giving, I have no problem using it for just that. On the other end, i won’t touch my emergency fund or break my budget for someone else. I barely even do that for myself!
3) Retirement and investment accounts are not an option
I’m not just seeking financial independence for my own comfort. I also want to be able to have a big impact on the world. One of my dreams is to create a scholarship fund for underserved students that can last even after my death. I can only do that if I reach a specific amount in my portfolio and can afford to put hundreds of thousands towards that fund. Tapping my financial freedom fund to help relatives make the monthly payment for a second car they don’t use or need won’t help me get there faster.
4) Emergency funds are only for my own emergencies
Anything else is considered giving unless it’s a life or death situation (refer to 1). It sounds harsh but once you start blurring these lines, it’s a slippery slope.
5) Be honest
Don’t make empty promises expecting people to forget about them. I embarrassingly used that tactic quite a few times. Lacking the courage to just say no, I often tell people to check back with me on a later date. Needless to say It backfired every time.
6) Share financial wisdom with whoever is willing to learn
Some people will never change. They really have no will to be smart with their money and just want to take it day by day.
Nonetheless, many others genuinely struggle with their finances and just don’t know how to make better decisions. These are the ones I try to help with the little knowledge I have.
If they really are open to bettering their lives, the advice you give them may be way more valuable than the money you give them when they are low on cash. Especially in the long run.
I understand that I may come off as selfish in this post. I certainly don’t intend to. My main point is that it’s important to protect yourself and your future before you attend to other people’s issues. If you don’t set clear boundaries, things will get out of control.
Giving should be systematic, hence the sinking fund described above. That does not mean the vital areas of our finances like retirement and rainy day funds should be affected.
In the end, you want to set yourself up so that you never have to be in a situation where you can’t fulfill your own financial obligations.