I've fortunate enough to be mostly FI, mostly through good luck, though I was headed there by age 35. Thriftiness taught by my depression-era-child father, and by stumbling into "Your Money or Your Life" early on, set me in the right direction.
The question I have is: Others in my family (and especially my in-laws) often turn to us for money help, and we've generally messed up how we've handled it. Have others had this problem/opportunity and how do you handle it?
Discussion / Details:
Probably because of my father, all the family loans on my side of the family have worked out great. We set them up to split the interest between what I would get in a CD/Savings Account and what they would pay for a mortgage. Never any real tension (except over who was keeping tracking of the paperwork :D), and the first mortgage worked out well enough for all that we're now into a second. Everyone won.
My in-laws, however, are totally different. No money lent has ever been repaid, and when setting up the loan, all talk of interest was met with horror! (Of course it was only going to be for a short period of time, just to get over the hump).
Someone else I know has it worse. His partner's family had many kids, and as adults they all turn to them for money. He's sick of it, his partner's loyalty is torn between him and family, and, its all very messy.
As many of you have already guessed I'm sure, the worst is the way the money is spent. So often, after getting the help for "a little bit" (usually multiples of $10k) to "just to get by", a new car appears, or a new kitchen, or similar extravagant purchases that no Mustachian would ever consider for themselves, let alone with someone else's money! Rarely does anyone ask for advice, they just want the money. This is often rationalized as "You were so lucky. Not everyone can be so lucky". Nevermind the completely different lifestyle, priorities and choices being made.
Other info:
+ for the most part, none of these loans will affect my FI, but how they are treated really does affect my "karma"
+ we've gifted generous amounts to family over the years
+ invariably "in-law" loans seem to be the problematic ones, so handling that with your partner is challenging too
One idea is to setup a family loan pool. Make its contents public between the family. Make all loans made out of it public to all in the family. When the pool is empty, it can only be filled up by repaying loans already made. However, how can this avoid becoming a tragedy of the commons? First one to put a straw in the pool sucks it dry and that's it. One would hope the scorn of the rest of the family would fix this? An argument against is "this is very private, even within family" - though personally I say "screw that".
Another is just to never make family loans. Perhaps just gifts, or nothing. Not sure how that would work.
As much as anything else, as others become FI, please be aware of this potential problem. No good deed goes unpunished.
Has anyone else hit this? Do you have any advice? Also, once you're already in the hole with a bad loan, any advice for getting out?
