F I N A N C I A L S E R V I C E S , L L C
616-514-3831
www.MattsonFinancial.com
November 2017
Counting Your Blessings Family, Friends, and Finances
Often during Thanksgiving and the holidays, and especially when we get together with family and friends, we look around at all we have. We count our blessings, give thanks, and recognize our good fortune in life. Whether it’s our family, our health, or our finances, there is always something to be thankful for. Recently, a client told us about a transaction they made. Our client purchased a used car from a private seller, someone they happened to be acquaintances with. As part of the transaction, it turned out the client paid over market value for the car. While it doesn’t necessarily make financial sense, our client had a different perspective. From their point of view, not only were they upgrading from their previous vehicle, they were helping out another person who was going through a period of financial stress. For our client, overpaying made sense. Our client was also feeling blessed at the time. Their investments and assets had done well, and they felt comfortable spending a little extra money on this particular vehicle. At a glance, you could say the client did a good deed, but it’s important to remember this one piece of advice: What the market giveth, the market taketh away. What do I mean by this? It all comes down to looking at the long-term effects of any loan or monetary assistance you give to family and friends, regardless of your financial situation. In the moment, a few thousand dollars may seem like a reasonable amount to loan, but long-term, that loan or expense can have a ripple effect. There is a good reason why so many financial advisors suggest that you avoid lending money to family and friends. Money makes people funny. A loan today is possibly a loss of a future friendship or family member.
More to that point, it’s not that you shouldn’t. Essentially, better advice would be to say, “If you can’t afford to give it, you can’t afford to lend it.” In other words, if you find yourself in a situation where you are considering loaning money to a family member or friend, think of it as a gift first and as a loan second. If you can’t afford to simply give away the loan amount, you need to rethink the loan. But it’s not just about whether or not you can afford it in that moment — it has to do with the future, as well. Think about your own expenses, as well as your investments. If you loan $4,000 to a family member today, will you need that $4,000 next month? It’s like retirement planning. Your 401(k) and other accounts may ensure income for several years to come, but once you start planning all of your future expenses — from general living
expenses to health care — your total income starts to sound a lot smaller.
In terms of giving a loan or financial gift, you need to examine how that decision will affect your future income. If you never see that money again, will it represent a loss of future income? Our client may have been doing well financially at that point in time, but down the road, the markets may be telling a different story. Their financial situation may be completely different. As you enjoy your time with family and friends this Thanksgiving, and as you count your blessings, be sure to keep one eye on the rearview mirror. What the market giveth, the market taketh away. –Gary Mattson
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