This weekend I was upset because a sibling who has a history of money mismanagement has gotten another bail out and my relative called me about it.
They feel bad either way: if they give, they lose money, if they refuse they feel cold-hearted. She felt like she was in a lose-lose situation.
We talked it through, but I honestly think she’ll keep bailing family out.
She has a generous heart and I hope she learns that helping family doesn’t always mean loaning money. I want to share a few thoughts on the topic; hopefully it can benefit others.
Lending money to loved ones can break your heart.
Ask Before Lending Money to Family and Friends
Since this is such a delicate situation that can easily go bad, you really owe it to yourself to ask a few questions before deciding what to do.
Are you their emergency fund? Have you noticed that they constantly go to you to get financial help? If so, then you’re their emergency fund. You should really examine if they’re having emergencies or if they have bad money management.
Do you have an emergency fund? If you can’t take care of yourself, then bailing out family and friends puts you in a very dangerous situation.
Can you really afford to help them? You may have some savings tucked away, but can you afford never seein that money again?
Ideas to Help Family and Friends Instead of Lending
If you want to help, but think that bailing them out with money is going to make it worse, then here are some things I’ve done.
Give a gift. Don’t loan, just give a little something. We’ve given amounts that haven’t damaged our budget with no expectation of getting it back. It’s a free and clear gift.
Be specific with your gift. Perhaps just giving money will only mask the problem, so you may want to give a gift card for their specific need.
Offer to help them with budgeting. You don’t have to look at their numbers, perhaps you can share your budget spreadsheet.
Just say no. It can be hard to do, but sometimes it’s the best way to wake them up to their financial problem.
Most of the time,with the exception of option #4, the recipient takes it well. Family tends to complain more when you just say no, but no one has ever stopped talking to me.
How to Loan Money to Family and Friends
I know some people will still loan money to their family for various reasons. Since it’s a personal choice, I wanted to include a few tips. At the very least, I’m asking you to reduce the strain of the situation and have some formality to it. Whatever you do, have it in writing!
Avoid any confusion or miscommunication by stating the loan amount, the due date, and the payment plan. yes, a payment plan. You’e more likely to see your money again if you treat this professionally. If they object to this simple request, then you may not want to give out a loan. You’re probably giving them a better deal than any bank would and you’re willing to work out a manageable plan, so what’s their problem?
This may seem tacky for some, but if you’re loaning a decent amount of money,I think you deserve to how they’re using the money. Again, this is standard when receiving a bank loan. having this information can help you determine if this is something worthwhile.
It’s ultimately your decision, but please, please consider it carefully before you hand out any cash.
Elle Martinez helps families at Couple Money achieve financial freedom by sharing tips for reducing debt, increase income, and building net worth. Learn how to live on one income and have fun with the second..