Hypothetically, let’s say there’s this guy you know who just dropped $14,000 to get rid of his house so he can be mortgage-free, but due to this his cash reserves took a major hit and his wife is now worried there’s not enough padding for emergencies.
And then let’s also suppose that this person’s parents called up and said – “Hey, wanna borrow $14,000 and just pay us back each month with the savings you’ll now have from getting rid of the house? Which should take you about 15 months if you throw the entire $900 at it each month?”
To which you think to yourself, “Huh… an interest-free loan that pays itself off each month? And I get a happy, comfortable, wife too? Nice! What am I missing?”
But before you could answer this, you get smacked in the face with a sign that reads, “WHY DO YOU WANT TO GO BACK INTO DEBT AGAIN DUMMY??? WHAT TYPE OF
BLOGGER HYPOTHETICAL PERSON ARE YOU??”
Of which of course stops you in your tracks. But only for a few minutes…
Because then you remember you’re also about to fully fund your retirement contributions for the 2015 year which will cost you another $25,000’ish, leaving your once $40k+ strong stockpile whittled down to $2,000-$3,000. Which is fine if nothing goes wrong (it’ll be replenished each month going forward), but certainly teeters on the brink of riskiness as a self-employed father of two supporting his whole family.
Which leads us to today’s question:
What would you tell this person if it were you? Would you take the money and hug your mother profusely, feeling thankful to even have such an option? Would it never even come up because you don’t mix family with loaning? Do you tell everyone they’re all nutso and to stop polluting your mind when you’re finally debt-free after 10+ years?!
I know if it were me, and of course it is certainly not me, I’d have a hard time coming up with the answer. A part of me would love the idea of an extra $14,000 cushion knowing full-well you can repay the loan off at any given point of time, (and that it would also please your mother to no end as she loves being able to help out her grown sons!), but on the other hand I’d feel like a total un-grown son and maybe even a hypocrite. Since, you know, I’m supposed to have my $hit together and plan better as a professional financial blogger. Can you imagine writing a blog post about how you needed your mommy to bail you out of a cash flow problem like that? At age 36?
I don’t know what I’d do in this guy’s case, but hopefully you can share your own thoughts in the off chance I’m ever presented with such a unique (and very specific) situation :)
Have you ever taken out a loan from your parents before? Would you take this one? Decline it and hope you don’t need to tap any emergency savings for awhile?
Not max out your retirement account and avoid all those tax savings/future wealth growth?
A tricky pickle he’s in, indeed… Good thing he has awesome friends like us to help him out!
UPDATE: After marinating on this for over 2 months (!!!) my friend finally made a decision :) You can read about it here: That Time I Borrowed $14,000… Then Gave it Right Back
[Random sidewalk graffiti by Seabamirum]