5 financial mistakes to avoid when you’re trying to help others

When you have some money and others around you don’t, it’s normal to want to help them out in some way. For many, this can be a satisfying use of their money. However, if you aren’t careful, you can do harm to yourself financially or provide less help than you intend to. Below are some of the mistakes you can make when you’re trying to be altruistic with your cash and how you can avoid them.

Not understanding cosigning

Someone has just asked you to cosign a loan for them. This might be for something that is genuinely important to them. Students often are not approved for private education loans without a cosigner. You may feel as though you can change their life profoundly by giving them this educational opportunity, but it’s important to understand that cosigning is more than just a formality.

You may be wondering if you should cosign a student loan, and before you answer this, you need to understand that there can be drawbacks. You should ask some questions before proceeding because if the student does not repay the loan, you can be held responsible for it.

Loaning money to friends and family

Is loaning money to friends and family members a mistake? As with cosigning, the answer is that it depends. There are a couple of schools of thought on taking this step. One says that you shouldn’t loan money to friends and family members that you can’t afford to lose. In fact, you might be better off thinking of it as a gift and regarding any chance of repayment as a kind of bonus rather than something you expect to happen.

The other is that you should make it as official as possible, drawing up a document that you both sign and perhaps even agreeing on interest. Whatever you decide to do, it’s important to keep in mind that the relationship is probably more important to you than the money. What will your reaction be if you are never repaid?

Not adequately researching charities

You love cats, or you really want to help people in a famine-wracked country, or you hope to contribute that will assist individuals in starting their own businesses. You’ve found a charity that does just the thing you want with just the population that you want to help, so all you need to do is make the pledge and send off your money, right?

Unfortunately, it isn’t quite that simple. Not every charity uses its money wisely. Some aren’t very transparent at all about their finances. Others are more open but seem to spend most of what they make on admin costs. If you really want to make a difference, do your research, and make sure you’re sending your money to a place that’s going to make it go far.

Not structuring your estate plan correctly

You’ve got children, grandchildren, or other loved ones that you want to give a financial boost to. You’ve written a will, created a trust, or designated them as a beneficiary on one or more accounts, but are you really going to help them? You may want to meet with an attorney, a financial professional, or both to make sure that your estate plan is set up in a way that maximizes what you will leave to your loved ones.

If someone in your family has special needs and receives government assistance, it may be better to put their inheritance in a trust to ensure that they are able to keep receiving the assistance. You should also review your estate plan periodically because both your relationships and laws may change in ways that make it necessary to change the plan as well.

Destabilizing yourself financially

When loved ones are in trouble financially, you want to do whatever you can to help them. However, it’s important that you continue to build financial security for yourself and don’t put your own financial stability in jeopardy as you try to provide this help. Running up your credit card bill, taking money out of your retirement fund, and simply giving more than you can spare are all ways that you can do real harm to yourself to help others. Do what you can but know your limits.