Loaning money could trigger your financial ruin
at the time of your life when you least need it
Does this sound like you?
- Are you one of the 74% of people who are financially assisting adult children?
- Do you lunge from one debt drama to the next?
- Are you continually loaning money to family members or friends?
- Do your family micromanage your wallet?
Many South African seniors are digging themselves into a financial hole, as a result of helping out adult children, other family members and friends.
Conventional wisdom says that you should never lend more money than you can afford to lose. It’s true! Believe it! There is absolutely no guarantee that when lending money, you will see that money again.
Consider following these three golden rules for seniors in order to avoid the strained relationships that often follow a financial entanglement:
Golden Rule # 1 – Formulate a policy of saying “no”
If you have a “no” policy, and you broadcast this in conversation to family and friends, it will make it easier to think on your feet when the situation arises. Practice a script which could include:
- Sorry, I wish I could help, but I don’t have any money to lend
- I have had bad experiences lending money, so I have instituted a strict anti-lending rule and therefore don’t lend money to anyone.
- The last time I lent money, I wasn’t paid back, and so I have made the decision not to do it again.
Golden Rule # 2 – Try to assist in other ways
You can lead a horse to water, but you can’t make it drink. If you have family members who need financial assistance regularly, think of other ways you can help. Rather give a hand-up than a handout. Perhaps you could offer to help them set up a budget to pay off a debt, or help them with a job search, or offer to provide a few cooked meals.
Golden Rule #3 – if you have to lend money, put the loan in writing
If you are in a situation where you feel you need to lend the person money, then ensure that this loan is put into writing. You need to have a clear plan of action for the payment plan. The Loan Agreement can include the essential terms – the amount of the loan, the repayment terms and deadline, and the payment timeline. A Loan Agreement protects you if things down the line get ugly. The Small Claims Court is inundated with matters like these.
This may sound a little extreme but the Loan Agreement needs to spell out what should happen if you were to die before the loan was repaid. Will the loan fall away, should it be owed to your estate or deducted from that person’s share of any inheritance? This is to alleviate any family in-fighting over your estate.