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Things to consider when lending money to loved ones.
You’re probably fairly used to helping your family out with a little extra cash here and there. Whether it’s pocket money for doing chores, or money to pay phone bills, go see a movie or buy clothes, for example.
But what happens when they put their hands out for help to buy the big-ticket items? They might want some money to buy a car, pay for a holiday or even get a deposit together to buy their first home.
The question is, even if you can afford to help your family financially, should you? It could provide them with a helping hand that’ll really make a difference, but you also must ensure your needs are looked after and you’re not leaving yourself short.
Are you stressing about whether or not you should hand over your hard earned savings to your loved ones? Get some advice and contact one of our advisers today.
Here are some things to think about:
Discuss how the money is going to be used. Is it something they could save up for or do they genuinely need your help?
Decide if you want the money back. Even if you can afford it now, think about whether you might need the money for other expenses or commitments later.
Agree on the terms of when and how the money will be repaid. If you decide on a loan, discuss how and when the loan could be repaid by, plus whether you will impose any sort of penalty (such as interest), if it’s not repaid on time.
Write it down. This might sound overly formal, but it sets the ground rules for making a true commitment to repay the loan.
Talk early and often to identify potential issues as they come up. Don’t wait until minor issues, such as late payments, become more serious.
Give them a refresher on managing money. This is a good way to really embed the principles of needs versus wants. Ask your family to work out how much they could put aside by using the AMP savings calculator or budget calculator.
Ask for advice. If you’re lending a significant amount of money, you might want to check with your solicitor if there could be legal repercussions, including what happens to the loan if your child gets married or is in a de facto relationship.
Providing financial support in other ways:
Gifting
It’s a great, tax-free way of helping your family when they need financial help.
Just make sure you think carefully about whether your gift will put a dent in your retirement savings and if you’ll have enough for the lifestyle you want to lead when you wind down from work. Try the AMP retirement simulator to find out how much you’ll need.
Also, consider the impact on your Centrelink entitlements. If you’re receiving benefits, such as the Age Pension, for example, a loan or gift to your child may impact on your payments and your financial security. You must tell Centrelink about any gifts or transfers within 14 days of when they have occurred.
Going guarantor
This is one way to help your family own their tomorrow whether it’s buying a car or first home, but be careful not to put your own home or lifestyle at risk in the process. Make sure you only go guarantor for an amount that you can comfortably afford to pay if your family defaults on payments.
What else to consider
Whatever option you choose to help support your family:
Make sure the loan or the gift is within your budget and won’t affect your everyday lifestyle or retirement.
You and your family might be interested to know that the new AMP B3tter Account can help you manage your money, with pay, save and spend accounts.
Consider taking out insurance to cover you, or your family member, in the event of unforeseen circumstances.
If all else fails, you can get in touch with us if you would like to discuss your circumstances.
What you need to know
This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.
