Some choices in life we make because we think they are necessary, others because we think we are doing the right thing, but often there is another way of looking at it. While the following major family choices shouldn’t be made solely on the basis of money, in each case, these decisions will have a significant impact on your financial future, maybe more than you might think.
It is important to get tough and objective when you are faced with the following life situations, or at least be prepared for the incoming financial impact.
Getting Divorced
Divorce causes a lot of heartbreak, but it also causes a lot of financial hardship. It will have a damaging effect on your finances, both for you, your ex-spouse, and of course any children you have. While we don’t always think of the long-term financial consequences of divorce, they do exist.
In addition to having to run two households instead of one, there are the costs of lawyers and court fees. There may also be costs associated with changes in circumstances, such as having to sell a family home for less than you paid because of the need to sell it quickly.
Consider whether investing some time and money into saving the marriage will be worth it. If divorce is unavoidable, do what you can to make smart choices to reduce the negative financial impact.
Lending Money to a Friend
You should never lend money to a friend. There, I said it. If your friend needs money, consider whether or not you are in a position to gift the money to him or her. If you are, great. You can help out your friend and feel good about it. If the money does get paid back, you can consider it a bonus.
If the loss of any money you lend would cause you or your family financial hardship, just say no to the request and try to help in other ways if you can. For example, you could help with paperwork for a bank loan (but don’t co-sign), offer meals or transportation until your friend gets on his feet, etc.
Lending money to a friend can be risky to your friendship, but also to your own financial future, if you are counting on that money to be returned. I have even known one gentleman who went bankrupt after “temporarily” lending a friend a large sum of money that was never paid back.
Overbuying a House
Buying a home is usually an emotional decision. You can fall in love with a home, even if it is out of your price range. If you are shopping for a house, be firm with your real estate agent and tell him or her not to show you anything you can’t afford. Overbuying a house may mean that you have to pay PMI insurance or go into more debt than you can handle. If you absolutely can’t find anything you like in your price range, consider making some sacrifices, such as putting up with a cheap apartment for a year or two so you can save a significant amount of money to put toward the home of your dreams.