It was Shakespeare who so eloquently suggested: "Neither a borrower nor a lender be." When it comes to lending or borrowing money among family members, the most common advice is summed up in three words: don't do it.
Financial literacy mentor Valerie Coleman Morris says if you choose to borrow from or lend money to friends or relatives, you can do it successfully if you have the right attitude.
The message is: I think Shakespeare was talking about preservation - of one's money and one's friendships/relationships. Otherwise loans motivated by and made in good faith can get very complicated and very uncomfortable.
1. The first step is to make a plan
- Determine this is a loan (not a gift)
- Whether it's with or without interest - I suggest with interest
- IRS requires a minimum interest charge for private loans over $12,000.
2. The next step is to be professional about it
- What's the amount being loaned?
- When will the loan be repaid?
- What will the repayment schedule be?
- How to avoid/handle any potential problems with the IRS
- IRS is especially sensitive to gifts and interest income
- This proves to the IRS this is a loan not a gift
- Interest rates vary depending on length of loan
- The lender and the borrower sign the agreement
The goal is: To keep the relationship intact, provide a personal loan and be repaid.
The money mantra: It's my money, I take it personally. This is my friend or family member. Let's do it right with the rules of engagement and repayment in place.
Conclusion: Minding over your money matters. When done properly, loans between family and friends can benefit both the lender (getting a competitive return on his or her money) and the borrower (getting a good, friendly interest rate). That way both the borrower and lender can profit.
About Valerie Coleman Morris:
Valerie Coleman Morris is a Bay Area native when it comes to television news. She began her career in the early 70s in San Francisco at KRON-TV as a reporter and then KGO-TV as a long time anchor.
She was part of the Van Amburg/Jerry Jensen/Pete Giddings news team that branded "happy talk" as a new news genre.
Valerie's the former Business Anchor for CNN domestic and international - her dozen daily reporters were seen every day by more than 290 million households, businesses and airport networks.
She still appears on CNN as a personal finance guest expert but now focuses her works as a financial journalist/educator with a unique point of view about money.
Her "mind over money matters" approach gives the thought process for a behavioral change: re-calculating your relationship with your personal money.
Valerie's mantra: "It's your money, so take it personally."
Valerie's blog site "Women and Money"
Posts domestically, internationally every Thursday
For more information, visit thethinpinkline.com
Valerie's daily podcast "Valuable Money Tips"
For professional women
For more information, visit www.napw.com
CBS Network Radio
"With the Family in Mind - Money Matters"
Three times a week syndicated radio column