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What to consider before lending money to family and friends
When your best friend views your
nest egg as a source of start-up funds for his latest business venture, or your
nephew hits you up for a car loan, your first impulse may be to reach into your
bank account to help. But it's a fact that loans to family and friends often
end up straining both finances and relationships. As Shakespeare said,
"Loan oft loses both itself and friend." In other words, if you lend
money to friends, you often don't get paid back, and the friendship itself may
disintegrate.
It's best to consider a loan to
someone you love as an "arm's length" transaction. If you're
pondering such a loan, keep the following in mind:
* You can just say "no."
It's your money, after all. Do you really want to raid an emergency fund or dip
into your child's college account to finance a friend's business idea? Think
like a bank. It's reasonable to ask tough questions about the person's bank
accounts, potential sources of income, planned use of loan proceeds, and
spending habits before extending credit.
* Consider a gift. If you're
comfortable sharing your resources, you may want to provide a monetary gift
with no strings attached. In many cases, this is the best solution because
neither you nor your friend expect the money to be paid back. Unlike a loan, this
type of arrangement can forestall misunderstandings and hurt feelings later on.
Of course, you should not give money if doing so would unduly strain your own
finances.
* Formalize loans. If you decide to
lend more than a small amount to a friend or family member, it's generally best
to draft a written agreement. This can be as simple as filling out a promissory
note (available online or at office supply stores). Such forms spell out the
basic terms of the loan -- amount, interest rate, payback period -- and provide
some limited protection should you and the borrower end up in small claims
court. Another recent innovation is the use of direct lending (also called
social lending or peer-to-peer lending) websites to facilitate loans between
family and friends. For a fee, such sites can prepare loan documentation, send
payment reminders, issue regular reports, even facilitate electronic fund
transfers. If the loan involves a significant amount of money, check with your
attorney.
Remember: Many personal relationships
have been damaged when loans go awry. So proceed with caution.
Posted in tax
Hi guys, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Whether you should take social security retirement benefits at the earliest possible date or defer benefits until reaching normal retirement age (or even age 70), depends on several factors. For example, you'll want to consider your overall health and life expectancy, your plans to earn income before reaching normal retirement age, anticipated returns on your other investments, and, surprisingly, your guess about the future of the social security program. As you can tell, the decision isn't one-size-fits-all.
For instance, say your savings won't cover ongoing expenses and you need to rely on social security income to make ends meet. In that case, deferring social security benefits may not be an option for you.
But if your financial situation offers more flexibility, deferring your benefits can be an advantage. For each year you delay (up to age 70), the payouts increase. In addition, if you plan to earn significant income between age 62 and your normal retirement age (65-67, depending on the year you were born), putting off your social security benefits may make sense. That's because any benefits in excess of specified limits ($15,720 in 2015) will be reduced. You'll lose $1 of benefits for every $2 in earnings above the limits. Note that you won't lose any social security benefits (regardless of earnings) once you reach full retirement age.
On the other hand, let's say you've accumulated a healthy balance in your 401(k) and expect that account to generate a good annual return. Under this scenario, you might be better off leaving your retirement savings alone and taking your social security benefits early to cover living expenses.
Or perhaps your family has a history of health problems and you don't realistically expect to live into your 80s. Again, taking social security benefits at age 62 might be a good choice.
If you like to learn more, click the link lowermytaxnow.com and subscribe to my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com
Last Updated by Admin on 2015-10-29 10:54:07 AM