For those of you on pins and needles just waiting for an update on that $14,000 Mom & Dad Loan dilemma, (you know who you 3 are), wait no longer…
I took it!
And then I turned around and gave it right back!
Haha…
Truth be told, this was one of the hardest decisions I’ve had to make in quite some time, and after two months of going back and forth I finally made the decision to accept this blessing, only to receive a separate – even better! – blessing which completely changed everything.
For those new to the site, back in January we sold our house that we’d been dying to get rid of for years (see here), but in doing so we knew we were going to take a big cash hit when all was said and done. That hit came out to about $14,000, right before we were about to invest another $25,000 into our SEP IRA to max out retirement savings for the year. Both of which we knew about going into it and were braced for, but sill didn’t change the fact our cash reserves would take a significant plunge all at once – almost wiping away our entire savings.
When my parents found out about this, they graciously offered to loan us $14,000 (interest-free) to help shore up savings until we filled it back up. The idea was to pay them back the $900 saved each month from offloading the house, thereby wiping away the loan in approximately 15 months. They’d get to feel good about helping out their son, and their son would rest easier knowing there was money to tap in an event of an emergency. A great offer indeed, however it also meant going right back into debt again after just clearing $300,000 in mortgages off the books.
I blogged about whether to take it or not, and interestingly about 90% of people who chimed in *online* said a “hell no” to going into debt and to basically man up and hustle ourselves back to savings again, while those who sent their opinions via *email* (people who signed up to get these articles in their inbox – you can do so here too if you want!) said to graciously accept it. That family is there to help, and if we had a good relationship – which we do – then why wouldn’t we take it if it helps us out and we know for a fact we could pay it back in time?
The dilemma aside, I found THIS part the most fascinating! Why was it that the public opinions skewed so anti-debt and towards technically “the better answer,” while those in private were cool with going for it?
Was it the stigma of debt moving people in one direction online, and the more intimate (and not public) relationship people have with email prone to more emotional leanings without fear of retribution? Or was it something else entirely and just mere coincidence?
I don’t know how to figure that out short of polling people who spoke up and asking them to be open about it (any takers?? :)), but deep down I was having these almost exact struggles internally and felt the publicity of it definitely played a part.
The “financial blogger” side of me wanted to politely decline and move on as all debt = bad and what type of role model would I be to promote such a thing?, but the conservative family man side of me, with a wife who told me repeatedly that she does, in fact, want us to take the money to be safe, was urging me to just accept it and sign on the dotted line.
This was the reason it took me two months to finally make a decision. And it didn’t help that I didn’t know what I wanted, personally, myself!
As you know now, however, I sided with my wife and security over “the right way” to go – the whole time dreading having to write this post :) Even though yes, it’s our lives and our money and we can do whatever we want with it, it was still hard to ignore the points that many of you made in that original article. Though I must say, I came close to running with the idea of keeping the loan close by and ready to be activated at any point shall the need/emergency arise! That was a great middle ground, and we thought long on that one.
So how did we go from taking out this $14,000 loan, to giving it right back shortly after? Well, as the spiritual people like to say out there – the world has a funny way of working out sometimes :)
While we were so focused on selling our own house and getting our finances in order, my wife’s parents were doing the same and happened to close on their house within weeks of our own. The whole time, unbeknownst to us, planning on using part of the proceeds to help out the families of their half dozen children! So as you can imagine, we were quite shocked when they handed us a check for $10,000 this weekend as we were saying our goodbyes on Easter – wow. Talk about a gift!
I of course felt a tinge of guilt at accepting this wonderful blessing as well, but that was short lived when I recalled a post by the Financial Samurai wondering why people are so ashamed of inheriting money?
“The only reason why you’d be ashamed of inheriting your parent’s or grandparent’s money is if you DISHONOR their money by spending it frivolously on stupid things… Nobody asks for an inheritance. It just happens.”
A great reminder indeed that there’s nothing wrong with accepting gifts. And while this one wasn’t an inheritance per se, I’d like to think paying off debt would certainly fall under the category of honoring one’s money :)
All this to say that we ALL struggle with financial decisions from time to time – even people who work in the industry – and the best we can do is simply the best we can do.
We’ll get some right, and we’ll get some wrong, but as long as we stay as true to ourselves as possible and do what’s right for us at that *very given moment* in time – even if we’re unsure! – we can be proud that we did the best we could. And fortunately most mistakes can be corrected later anyways :)
Thanks for reading along! Hope this helps some of you with your own decisions!
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Wow financial samurai has some deep stuff. I don’t think I would take the money unless I wasn’t able to get it from my Roth’s. Some emergency “just until the next paycheck” type thing.
Glad it wasnt an instant gratification decision for you. That also makes a big difference.
A decision should always be base on whats best for you and the family, not when friends on the internet or e-mail say. Even though we’re pretty smart. :)
Haha yes – you guys are! You’re like my conscience over here :)
I missed the original debate, but my take is that you were framing it oddly. Yes, you had to choose between two non-ideal options. But given that your wife had expressed a strong emotional need in regards to the finances, and marriage is a collaborative effort and not a solo rodeo… It wasn’t ‘no savings vs debt to parents’ it was ‘strongly factor in my spouse’s needs vs making my own decision’. I’m glad you chose a route that made your partner not have to live in quiet panic. But I’m not sure why YOU made that decision rather than Y’ALL made that decision.
I have gone between between the two extremes of financial emotional comfort. I’ve chosen to live temporarily with very little cushion to pay off debt… And it was extremely stressful emotionally, even as I was hugely proud of no debt. I’ve also since chosen to hoard a tad obsessively into my emergency fund, because it’s my financial blue blanky of comfort.
But I’m am anxious person, and a lot of my financial decisions revolve around not wanting to eat dog food when I’m old, nor live in a cardboard box by the river. So perhaps not the most rational decision making algorithm, but it does mean that I highly sympathize with the emotional aspect of finances.
It’s good that you know yourself so well! More chances of making decisions off that vs what others think/say/are doing :) As for our decision over here, it was a joint one but up until this point she was the only one to give an answer (albeit a strong one) while I was still trying to figure out where I sided… Eventually I realized I wasn’t going to move much from my 50/50 stance, so best to go with hers since it made her super happy/comfortable and solved the problem once and for all… Just wish it took me sooner!
I would personally feel uncomfortable borrowing money from my parents, but I can see how in this particular situation it was a smart move. Congrats on being mortgage free! A lot of financial decisions Mrs. C. and I make stem from the ‘happy wife haply life’ mentality. She is even more conservative with mony than I am and if our savings was going to take that big of a hit I know she would be very uncomfortable.
Thanks, man. Yeah – I remember once we were hovering around $50,000 in emergency savings and my wife once telling me it would make her even more comfortable with $75,000 haha… She’s come a long way now that we’re in the mid teens, so the additional padding certainly helps!
Oh wow, she’s even more financially anxious than I! My emergency fund min is $20k. We have other savings to back that up if needed, but anything over $20k has me figuratively rubbing my hands together in glee.
I have borrowed money from my family multiple times. I owe a LOT of my current financial stability to gifts and loans over the years from them. Every loan I have paid back in full and early. I am the only sibling that has ever even paid back “loans” from my parents. They’re usually gifts that are described as loans to save face for the “borrower.” I’ve had an unexpected windfall close to the one you describe, too. I own a home with substantial equity partially because of it.
I’m not ashamed of borrowing money interest free from family or taking gifts from a very frugal (and now, of course, very rich) grandmother. I won’t hesitate to loan it to my children when it can truly help them (so long as they’re not being dumbasses). I won’t hesitate to spend what needs to be spent if my parents need help in the future due to failing health, either.
This is what we do. We like to think we’re these little islands, but we’re not. I have no interest in spending my last penny on the day I die. I want my kids to be rich, too. My grandmother, who went through the depression living, literally, next door to the Walton’s, want her offspring and grandchildren to be rich when she goes and never have to face what her family faced.
We should work hard to make it on our own as much as we can, because that just helps insure we succeed when we get a few helping hands along the way.
Beautifully said, man. Really appreciate you doing so.
So true – “We like to think we’re these little islands, but we’re not.” As is this, haha… “I won’t hesitate to loan it to my children when it can truly help them (so long as they’re not being dumbasses)”
I was raised to have a similar mindset when it comes to money – when I have it, I’m happy to freely give/loan it out to close friends/family who need it and who have a similar respect for that money that I do. I’ve been the beneficiary of such gifts in the past, and I treated them as loans to be repaid as soon as I was able. It brings me peace and happiness to return the favor– especially if I see a friend struggling over something I can help.
More interestingly, to me at least, is the ongoing “interest-free line of credit” I have with my father that began in 2011 when I was just a poor college student taking an extended international trip. He gave me a secondary credit card on his account to be used so that I could avoid international fees, and he’d send me a spreadsheet each month of what I owed him so I could transfer it back to his account from my checking.
It continued well into my move back to the US to start my first real job, into my first apartment, and then through more stable financial times – when my recurring bills showed up to my permanent address–>his house, where I no longer lived. He continued to simply pay and later bill me, and let me pay him back for his convenience as much as mine. The balance of who owes who has shifted between us more times than I can count, and I think we both enjoy emailing a 4 year old spreadsheet back and forth month to month (or less frequently, when we remember), because it gives us something to bond over. It’s easy to want to be independent, to eschew all debt… But sometimes turning it down takes away something from the person who offered it in the first place. I wrote about the “Bank of Dad” last year on my blog (linked above).
– http://www.hartzogswag.com
Awwwwww that is so cool!!!
What a beautiful relationship you guys have together – I’m grinning hard over here :)
Congrats on the house/loan. I was initially against taking the loan, because it is family & debt. My side of the family probably would have never offered that loan, but my wife’s family probably would have & insisted that we take it (as they have with other things since we married). We would have paid it back, so that part wouldn’t have been an issue.
We are all looking for a hand-up, so this sounds like you got a high-five with this one.
Thanks for coming back and dropping in again!
Very interesting about the different sets of responses to your dilemma. I’d guess your hypothesis about the reasons behind the differences is correct. I would feel torn about that situation too, but it’s usually good to listen to your wife :) What a beautiful gift from her parents! And congrats on such a happy ending to selling your house. Seems like that decision was affirmed already.
Indeed… When you go out of your way to spend $14,000+ (updates/fees/etc) to get rid of something, you know it’s desperately wanted :)
I can completely empathize with having a tough time taking out an interest free debt from family. I also hate debt, and to make it worse I hate owing family or friends money. It takes a toll on me knowing that they could have that money invested somewhere right now making more money to help them out. However, I too have accepted such an interest free loan to help me. Even though it was an interest free loan, I still paid that loan off first before my other student loans at the time because it was too much guilt for me.
Thanks for your honesty man – helps out a lot reading how others feel about it too!
I wouldn’t be ashamed of inheriting money! Still looking for that long lost rich uncle somewhere… :)
In the past,I’ve borrowed some money from my parrents to pay a car loan that had 7% interrest on it. I am not ashame to borrow from my parents at 0% interest. I’ve always repay them fully and add some dinning out with them.
Also, I take money gift if they gave it to me since they are happy to give it and help us. I am not asking for it so they propose it by their self and they can do it without a prob. Else they gonna buy stuff that I don’t need and we will take it. So what is the difference from accepting cash or stuff ? I don’t see any.
I agree on accepting gifts – if only because I know I REALLY want to help my kids too in the future and would hope they’d accept them as well if and when needed. Of course we’ll do our best to help them get squared away and running on their own, but my goodness do I love helping them! :)
Good idea on the dinner part too – I’ll actually invite mine out to thank them!
I’m finding it interesting how many loans from parents are interest free. I took one loan from my parents as a young person, and we had an online system of repayment with a set interest rate. I paid it off early because I hate personal debts even more than regular debt. But I suspect my parents were trying to instill financial responsibility, even in my 20s. Which was silly, the lessons had been more than absorbed long before!
While it would be awesome to inherit money, based on personal experience, I have a hard time accepting money help from family. With our families it ALWAYS comes with strings attached. Even when they do something nice (Not related to family), they immediately pull it, if we do something wrong in their eyes. So, lately I’m just okay doing stuff on our own and it it’s absolutely necessary we will ask for help. It’s hard enough accepting the fact my husband works for the family business. He could make 2x-3x more working for corporate but he wants to help his dad. He gets paid pennies, but his salary is still coming from family. Sigh.
Oh wow – murkiness all over with that one, I agree :( And also very smart to separate them as much as you can then in that case – I would too!
Yeah, when money comes with strings attached, do everything you can not to take it from them!
I think I would not have taken the first 14k, but knowing if an emergency popped up I could fall back on it.
As for the other 10k, that’s very generous. I think they’ll expect it back when they are too old to take care of themselves. kind of like pre-paying their in-home help in the future!
Hah! I would have taken a down payment in that case too! :)
Things have a way of working out. thanks for sharing. I’m not sure what I would have done, but it sounds like it all worked out for you.
So one set of parents gave it as a loan and the other gave it (although it wasn’t for the same intentions) as a gift. Funny how life works sometimes, me personally probably would have gave my parents the 10k to payoff the 14k loan and kept the 4k depending on if the 14k was the ideal amount needed/wanted. 4k is lot easier to payback than 14k.
Yeah – that was the most wild part of it all. The other set of parents didn’t really know about our situation so it was purely just great timing and a nice surprise! We thought about still keeping the $4k debt too, but my instinct was to just give it right back knowing we wouldn’t have ever taken it if we knew the $10k was coming anyways, and since we didn’t need-need it I felt like it would be a great clean slate :) My wife wants to allocate the $10k later to something important, but for now it remains as our emergency fund!
Don’t think we weighed in on the original post, but I think there’s no shame in taking that loan, though I for sure understand not wanting to! It was a similarly sized loan that allowed me to get out of credit card debt in my 20s, and I’ll always be grateful to my dad for that. And now we’re paying it forward with a loan to a relative that’s letting him do the same, going against the advice of many of our readers. ;-) Your parents sound like great, big-hearted people — no shame in taking money they freely share or taking a short term loan if it helps you sleep at night!
Very cool of you guys! Yeah – that’s a total “no no” in financial “experts” and blog worlds, so way to still go for it and do what you feel is right! Love that pay it forward mentality.
Hey J! Very cool story. Funny how those publicly told you not to borrow, but privately folks said to go for it. There’s definitely a stigma or embarrassment factor going on here!
The fact it took you so long to wrestle with the decision also points to our own uncertainty, especially as we are supposed to be independent adults.
My mom always tries to give me money, and she’s definitely not rich. I decline politely, but she always then says “better I give it to you now so I can help you in any way I can, rather than after I’m dead!” What am I supposed to say to that?!
Glad things worked out!
Sam
Haha yup! And it’s a fair point too, right?? :)
Great post! It is a tough choice. Being stronger with my personal finances has been a struggle of mine for many years. One of the strategies I know is difficult to keep in place is to do this on my own. Meaning, without financial assistance from the outside. Place my belief in the knowledge that I gain every day and trust in myself that I will find a way.
I am so happy that you found a way through this decision. And you were able to make the best decision for your entire family. Because that what it always comes down to, making the best decision for yourself at any given moment.
Thanks man :) And knowing more about your background from our previous interactions, I can tell you that you are definitely well on your way to financial improvement – and really, just LIFE improvement all around! Proud to know you and watch as you go along this new journey! Keep going, man!
That’s great that things just worked out! Funny how that happens sometimes. Taking a gift does’t discredit you, unless you took a $1m gift and are trying to teach people how to build financial independence for themselves :) Take care!
hah!
where oh where have we seen that before, think think think….
OH YES!!!
https://budgetsaresexy.com/2014/11/the-millionaire-liar-next-door/
This reminded me of the “choose wisely” scene from The Last Crusade. I’d say you nailed it!
The quote about honoring our parents is very true. There should be no shame unless we ourselves feel undeserving of the gift. If that’s the case, then there are deeper issues that should be resolved first. Then again, I have not received any gifts yet, so maybe I would be hesitant to accept if offered something substantial.
There is a pride associated with the “self-made” persona, but I think it’s healthier to accept advice and help from friends and family.
It’s far easier for me, as someone who is single and childless, to say that she wouldn’t borrow the money, but having kids changes everything. If I had kids, I definitely would have considered the loan. You’re so fortunate to have parents who have the means to help out financially.
My parents always joke about how my brother and I shouldn’t expect an inheritance (they are not wealthy by any means). I keep telling them that I don’t WANT one — I’d much rather see them enjoy the money that they worked so hard to earn. They should live it up in their retirement years!
That being said, I did receive a small inheritance when my grandparents passed away in 2007 and 2008. For years, I had friends ask what I was going to do with the money but couldn’t think of anything that would honor their memory. In 2014 I decided to use it to help pay off my mortgage and I know it’s a decision they would have been proud of :)
Woahhh!! Perfect way to honor them – way to go!!!!
And so true about wanting parents to live it up in their retirement years after all that hustling and putting up with us kids, haha… I would like to very much leave some $$ for mine when the time has come, but there def. has to be a happy medium there.
And very true about kids too – changes the whole game!
Love your stuff. Get both budgets r sexy and rockstar sent to my inbox on the reg. Reading through this article I had one thought come to mind. I agree 100% on investing and trying to save as much as possible howeva do you think you might be too heavy for retirement? Imagine if you had a brokerage account where you could access $$ in case you do get into a bund and need the money (like this experience). This money will get market like returns, just like retirement accounts and better than what the bank pays.
I know it is not as tax advantaged as the SEP and Roth however this retirement $$ is locked up for many more years. If you do need the money you access it at capital gains rates (favorable) and if you don’t need it just kick the can down the road and use at retirement. Just a thought. Keep up the good work!
Something I think about often, actually! one the one hand I LOVE not having access to it directly just so it forces me to leave it alone and watch it grow, but on the other hand – you’re right – it could do a lot of good being able to be accessed as well if/when needed.
I will say though, that after reading lots of early retirement blogs lately, that there does seem to be some work arounds with *converting* the $$$ over into more accessible avenues when needed. And it’ll be something I def. take advantage of whenever it’s time to start pulling from them… I feel like that will certainly be sooner than later and most def. not in my 60s :)
but overall yes – an important thing to keep in mind for many reasons, great comment. (And thanks for signing up to all my projects!)
Wow … Decisions like this are why they call it… “Personal finance” with being said I am a firm believer in never borrowing money from family. The relationship always changes when you owe family money! .. However accepting gifts can be a blessing! However make sure there are no strings attached to the gift! With that being said congrats on the sale of your house! And it’s awesome to know you have family that always have your back!
I borrowed money throughout college and for part of our first mortgage down payment. I have a really open financial relationship with my parents and have always paid back loans. My wife’s family is the complete opposite and $ is not discussed at all – I don’t think I would borrow from them (also don’t think they would offer).
It’s all about what you are comfortable with – and how severe of a situation you are in
That is SUCH an interesting observation about the comments you got via email vs. on the blog. I definitely think there can be some pressure in the public personal finance arena to take a certain type of philosophy in regards to debt payoff and money management (that philosophy being, I’m doing it MYSELF, SUPER FAST, AT ANY COST). But really, personal finance decisions are personal, and nobody can tell somebody else what to do with their money. It sounds like you and your wife jointly made the best decision for your family, and that’s the only thing that matters. (And, due to pure serendipity, you also happened to get an amazing gift! Which is awesome!)
:)
I can’t contribute much (love the way it worked out–what great families you both must have!). But as a communications prof, I can tell you that part of the comment-vs-email-content differential is probably attributable to a tried and true theory called “spiral of silence.” Not to get too nerdy, but we know that when the “mainstream opinion climate” on an issue is apparent, those who dissent are even less likely to participate in discussion or provide their views for fear of retribution/isolation, thereby further marginalizing the already-minority opinion. There are lots of mitigating factors, but it’s the first thing I thought of when I read your post (that, and “oh hey, maybe I have something to offer the discussion for once!”). ;)
How interesting!! The “spiral of silence” – sounds like a horror movie, haha.. But yes indeed, quite the contribution to this discussion for sure. So glad you stopped by to share :) I bet it would be fun to take one of your classes!
Glad this worked out for you! For me, I’d have taken the money either way. Not all debt is created equal – the mortgage was a giant albatross around your neck, they money from your parents came from their love and kindness.
Plus, loans from your parents can actually be an efficient wealth transfer strategy – http://www.investmentnews.com/article/20150312/FREE/150319958/intra-family-loans-not-your-ordinary-wealth-transfer-strategy
I’m debating going down this same path, my parents offered to help me buy a house. Passing money around can feel weird with family. If I take them up on it, I’m going to use a third party to do an intra-family loan, that way we don’t talk about debt during Sunday dinner!
Good idea! I hope the process to making the decision is a lot smoother than mine too, haha… it feels so GOOD to have just made one once and for all to be honest.
Interesting you bring up the wealth transfer stuff too. Something else my in-laws mentioned was that since it was a gift under a certain amount, we don’t have to pay taxes on any of it. So kind gesture aside, it works out better financially too than accepting the $$$ later on once they pass and possibly having tax implications with it all!
great story, and interesting little social observation/study on the side…glad it worked out for you. I used to think the whole “positive vibe and good things will come” was a load, but I’ve had it work over and over for me. Crazy how things work themselves out sometimes.
Thanks again for sharing!
That’s a blessing to get that kind of a gift from family, and couldn’t think of a better place to put it than to pay back a family member (and so far ahead of schedule).
Good on you for doing it “the right way”.
I’ve borrowed funds from family before and found it was a more stressful debt than owing the bank or a credit card company!
We would have definitely declined the offer if it were like that! So it’s good to know yourself well, and your family too for that matter :)
The whole thing about privately borrowing money from family is an interesting topic and one we’ve had to consider here at Dividends Down Under, although we haven’t blogged about it.
We are about to go through IVF to (hopefully) have our first child, it’s all very expensive territory. My grandfather (who is wealthy) offered to loan us money, and said out of all the family we are “the most likely to pay it back”. We haven’t accepted or declined, I guess it is a little comforting to have that option as a “back up”, but I feel very strongly of doing this on our own.
A loan is just impatience manifested in finances, keeping strong with saving and working towards the goal will always promote personal growth. You have to make that money either way, you can either get a “lump sum” today and spend a long time paying it off, or save gradually for the lump sum (knowing you did it all on your own) – and that’s only if you’re lucky enough to a loan “interest free”.
There aren’t really any lessons to be learned or personal growth in instant gratification.
Jasmin
I hope you guys are able to conceive!! Would be such a blessing, despite being able to afford it all! Sending positive vibes!
Thanks J. Money this one was fun to read. Glad you got the money you needed to stay out of excess debt. Me and my boyfriend of 16 years are still looking to buy land and build our dream house ( what we can afford that to be any) … My parents are also going to have money and their used and antique collections given to their 4 children. I can’t wait to get my grandmothers on my dad side, bed room set. I have 3 other grandparents that passed as well, and till this day I do not know what I will be getting passed on to me, but I will treasure any and all of their old belongings. Keep me in your thoughts and prayers as I search for land and a builder, process is taking me over a year and I still do not know what company to go with or what town we will settle in. This will be a 30 year house, not a starter house, so the stress is on unless we win some realyl big money.
Good luck! Though please don’t rush if you don’t know where exactly you want to be living for 30 years – that’s a long time! :) Maybe y’all need to go on a fun road trip this Summer and scout out some spots?