LENDING MONEY TO A FAMILY MEMBER
Do you have emergency funds put away in the event of an emergency? A recent study by Fidelity Investments found that over 40% of US families do not have any sort of emergency reserves.
The obvious first choice for borrowing during times of needs,
while unemployed, is
from family and friends. You should also explore
- Do you even have the money to lend? Number one rule of thumb, don't lend what you do not have and say no.
**IMPORTANT - When lending money to a
family member or a friend, it is important that you execute a
promissory note between the two of you.
- What is the likelihood that you will be
repaid? Analyze the person's past behavior. If they have a
history of borrowing from family, and never paying back, they
will likely do the same to you.
- How much is lending going to cost you?
Suppose your nest egg yields 7% annually. So, if you lend
$20,000 to someone for five years, the actual cost is $28,052.
However, you may consider this a worthy investment if the money
enables your nephew to finish law school or help your father
finish building his dream home.
- Will you be able to get by without the money you are lending? Even if you are taking from your savings, will you be protected financially in the event that you have your own emergency to deal with?
If you don't have money to lend, consider being a personal loan co-signer.