Give family members love not money

BEWARE of lending money to loved ones. Separate your finances from your family, says Barefoot Investor.

BEWARE of lending money to loved ones. Separate your finances from your family, says Barefoot Investor.

LEO ASKS: My parents have been foreclosed on for failing to pay their mortgage. I told them to sell their house a year ago after they asked me for $3000 to cover arrears. They are guessing they will end up with $120,000 from the sale after repaying the bank. In the meantime, I am funding their bond for a rental property. I have an investment property they could live in, but it is tenanted until October this year. I have three small children and don’t want to jeopardise their future for my parents’ bad decisions.

BAREFOOT REPLIES: If your parents stiffed their bank, they’ll probably stiff you, as well. If I were you, I wouldn’t give them the opportunity, despite their assurances. Your relationship is too important. I’d ask them to pay you back the bond amount when they get the proceeds from the bank selling their home. Then, I’d use that money to book them in to see a good independent financial adviser who can help them sort out a plan. They probably won’t follow the advice, but at least you’ll have tried, and you’ll have separated your finances from your family. Give them plenty of love — but no more money.

FAVOURITE UNCLE

DENNIS ASKS: I’m 45 and single but have a huge extended family of seven brothers and sisters, plus 20-30 of their descendants. If I were to drop dead, the $1.5 million-plus worth of assets, super and life insurance in my name could end up in government coffers. I’ve know this for a while but just bury my head in the sand — I hate lawyers! What is the easiest, foolproof way of addressing this problem?

BAREFOOT REPLIES: So, you’re a millionaire and you’re too tight to spend a few grand on a lawyer to safe-keep it? Who are you, Scrooge McDuck!? You need a legally binding will, and not one from a newsagent. In other words, go to see an estate planning professional. They’ll be able to tailor a plan that’s specific to your circumstances. With such a large family, there’s bound to be a few black sheep in the mob, so it may be worth creating a testamentary trust so you can exert more control over what happens to your estate. You also need an enduring power of attorney, and must ensure you fill out a binding nomination within your superannuation. Before you see the estate professional, you need to decide what you’d like to do with your money, and have a discussion with your family so they know your wishes, ahead of time.

REDUNDANCY BOOST

CRAIG ASKS: The section I work in local government is having a restructure and I have one week to decide whether to apply for my own job, which I have had for 16 years. The redundancy package would be $100k, and our mortgage is $170,000. I want to take it and stay at home with my two kids. At the moment, I’m on a wage of $75,000, of which I only see about $55k. Our daycare fees are approximately $550 a week — all of which would I would save next year by being at home. On top of this, I’d get to hang out with my kids, aged two and four. My wife is a schoolteacher and I could get a job working the school holidays at my mate’s surf shop, or try something else. I could then apply back at the same place 12 months after the redundancy. What would you do?

 

BAREFOOT REPLIES: What would I do? I’d take the redundancy. I’d pay the money off the mortgage. I’d take the kids camping for a long weekend. Then I’d roll up my sleeves and start looking for another fulltime job on Tuesday. You’re essentially making the case for taking a year off. I wouldn’t do it — you’ve got a young family. These are your prime earning years, and you’ve just been delivered a windfall. Now, make it pay!

BACK ON YOUR FEET

STEVE ASKS: I am 51 and my wife is 41. A failed venture cost us $1 million and we had to sell our home. My wife, son and I now live with my mother. We have $230k in savings, $140k in a SMSF (which I’m not trained to manage!). We earn $150k per year, and my wife is depressed because of our loss. Our goal is to own our own house, have enough to retire and not pull our son out from a private school he loves (and which is costing us $27k a year). I need a plan.

BAREFOOT REPLIES: So your wife is depressed about losing $1 million. She’s probably even dirtier that she’s living with her mother-in-law … especially when you have $230k in the bank and you’re earning $150k a year! It’s time to move on. First, set aside $30,000 in Mojo — choose an online (relatively) high-interest savings account. Second, buy a modest home with a big deposit. Third, close down your SMSF — you don’t have a big enough balance, or the expertise, to run it. Roll your dough back into an ultra-low-cost super fund with a “growth” option. Speak to your boss about salary sacrificing 5.5 per cent of your pre-tax wages into super throughout the year, every year, until you retire. After you’ve done this you should have two goals: challenge yourself to earn more money every year, and pay off your mortgage before you retire.

 

barefootinvestor.com

The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice.

Originally published as Give family members love not money