Managing Your Money

You worked hard. Planned your retirement perfectly. Saved diligently. Considered the “what ifs”, and now you’re kicking back enjoying that long deserved retirement, when low and behold, someone you care about needs money. Could be a child, parent, relative, or friend. And now you’re torn. You really want to help, but you’re not sure if you can, or should.

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Although in some cases the answer is crystal clear, in most cases there is probably no right or wrong answer. There may be a myriad of emotions involved, especially if it’s a child or someone very close to you. Here are some different circumstances and some thoughts to consider on each.

For years now, Carol-Ann has given her two daughters a Christmas gift of $25,000 each. She is in her late 80s and has more money than she needs. Her goal is to see her kids enjoy her money while she’s alive, instead of after she’s gone. The key element here is that even considering the worst case scenario, she will not run out of money, and therefore she can give it freely without anxiety for herself.

Unfortunately, that is not always the situation. David and his wife Patricia have been struggling for years every time their son asks for money. He is an entrepreneur and has tried, unsuccessfully, to start business after business. They can afford to help, to some extent, but the first time he asked, they thought it would be the only time. Unfortunately, it’s hasn’t been, so a number of concerns arise. They have three other kids. How do they make it fair to all their children that they’ve given him almost $100,000? If they keep giving, are they just perpetuating the problem, always giving him a way out?  Helping is not always “helping”.  They are still young, in their 70s, and potentially have many years to live off their money. They are feeling a great deal of guilt with the idea of “cutting him off”, but many unexpected financial expenses can arise in their own future, and therefore, they need to prioritize their limited financial resources, for now, to avoid stress and worry about their own finances.

I’ll point out something interesting here about fairness, especially when it comes down to adult children and money. I have seen many situations where one adult child is far better off financially than the other or others, and so the parents wonder if they should give more, or leave more in their will, to the child who has less. These are very delicate situations, as sibling rivalry can bring back emotions long buried from childhood about fairness, favoritism, and jealousy. In fact, I have seen or heard of many “wealthy” people who have lost their fortunes to failed business, bad decisions, divorce, lost jobs, and various other misfortunes. And unfortunately that child, who is well-off today, could be the one who is struggling for money down the road. So that being said, before I would consider showing financial favoritism to one child, I would discuss with the “well-off” child their feelings about the disparity, and if they’re comfortable with it. It could save much resentment and many sibling relationships down the road.

Another tough situation is where a close friend or family member asks for money and promises to pay it back. And of course many of these situations don’t just happen in retirement, but can happen at any time. The added risk and stress of it happening in retirement is that once you stop working or sell your business to retire, you have what you have. Your savings at that point will be what you have with which to generate an income for your future. You need to consider if you have enough for yourself before lending money, that you might not get back. Now, I am not at all saying don’t give or don’t help others. In fact, I believe that giving, and helping others is what brings most people happiness, and it should be built into everyone’s budget or spending plan.  A good example of what I’m talking about is John, and his long time buddy William who asked for a loan of $30,000. John retired early after a successful career and being a diligent saver. William knew John was comfortable financially and that’s why he came to him for help. John felt bad that his friend was living in hardship; he also knew William’s history with money, and the lack of. He knew that being in his mid-60s anything could happen, from unexpected medical needs, to high inflation and low investment returns eating away at his capital. After much pressure and desperation on William’s part, with promises of paying back the loan in six months to a year, John ended up loaning him $15,000. That was six years ago, and William has only paid back $2,500. It has definitely put an awkwardness in their relationship, and John has now written off, with some resentment, any expectation of getting back the rest of the money.

So before you lend someone money, consider these things. Can you afford to lend the money in the short term? Can you afford to lend the money if you never get it back? If you don’t get it back, or it’s not being paid back according to the agreement made, will it affect the relationship? Money has ruined many relationships. Can you help in other ways, rather than lending money?

If you have more than you need and can afford to help someone without enabling or perpetuating the problem, then by all means help! If you’re in a situation whereby helping, you may put yourself in a position that will increase your financial stress and anxiety, then think very carefully before proceeding. Might you put yourself in a situation where you could outlive your money and have to go looking to others for help? If you have a financial plan with projections for the future, this is the safest way of evaluating whether or not you can afford to give money away, and what the effect will be down the road, considering various “what if” scenarios. Whichever route you take, tread carefully!

Special Note: I host presentations regularly on different topics. Please visit my website www.ephtimiosmacneil.com or contact us directly for more info on upcoming topics and presentations.

Lynn MacNeil, F.PL. Vice President, Investment Advisor, is a Financial Planner with Richardson GMP Limited in Montreal, with over 20 years of experience working with retirees and pre-retirees. For a private financial consultation, or more information on this topic or on any other investment or financial matter, please contact Lynn MacNeil at 514.981.5795 or Lynn.MacNeil@RichardsonGMP.com.

The opinions expressed in this article are the opinions of Lynn MacNeil and readers should not assume they reflect the opinions or recommendations of Richardson GMP Ltd. or its affiliates. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them, having regard to their own particular circumstances. Richardson GMP Limited, Member Canadian Investor Protection Fund.

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