Money is always a touchy subject. Especially when you include family and friends into the mix. You want to help those you love, but sometimes you could be doing everyone a disservice. It’s also a quick and surefire way to burn bridges and ruin relationships.
Unless there is a court-approved contract in place, it’s best to avoid giving out loans. You wouldn’t go to the bank and expect them to give you a loan without a contract, and you shouldn’t treat it any different.
When should you lend money to family or friends?
Let’s begin by putting this on the table first. You should get the idea of “lending” money to family and friends out of your head. Should you decide to lend money to family or friends, you should treat it as a gift. With no expectation of ever getting it back. If you can’t afford to do that or if you don’t want to do that, then say “no.”
If you are in a financial spot to help out financially with a desire to also help, then who am I to tell you who to give a gift to? This post isn’t for you.
I do want to make one thing clear. Don’t let anyone make you feel like you owe them something. (Unless you actually borrowed money and owe them back, of course.) You are not responsible for anyone except yourself, spouse, children, and pets. Maybe your grandchildren depending on the situation. But that’s it. You have no responsibility to anyone else.
If someone has fallen on hard times, but you know they usually make good money decisions, then it’s okay to help out. Still, treat it as a gift, but if they do pay you back, think of it as a nice surprise.
When should you not lend money to family or friends?
Do you have family or friends asking you for handouts or “loans” even though they have the latest iPhone? Did they leave town recently for vacation while you’ve been stuck at work every day for the past 6 months? Did you lend them money several months/years ago and you’re still waiting for it to be returned? Is the person free from disability, but still coming to you frequently for financial help?
These are all signs that something is wrong with the management of their finances. Loaning money to these kinds of people will not help them, you will just be making them dependent on you or others. You’re opening up a can of worms of being the “go-to” guy when someone needs some quick cash.
The best way to provide help
My best advice for people in these situations is to provide them with financial advice. Send them links to personal finance articles that can help them out. Sit down with them and help them create a budget, so they can prevent this situation in the future.
Let them know the importance of creating an emergency fund and having some form of savings. Even if all they can put aside is $10-$20 a month, that will add up, as long as they don’t spend it. If you’re being extra generous, set them up an appointment with a professional financial manager to help them get their finances under control.
As the old saying goes, “Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.”
Give someone $50, they’ll spend it in a day. Teach someone the importance of saving and how to save, and they won’t have to ask someone else for $50.
Some people may be grateful for your help. They may have never learned how to manage their money and have been struggling to figure it out. Other people may get offended or wonder how is a budget supposed to help them. If you’ve explained the significance of these things and they don’t want to follow through, they probably don’t care.
If they don’t care about fixing their financial situation, what is loaning them x amount of money going to do?
Dealing with other people feeling entitled to your money
Like I said in the intro, money can create problems within relationships. You may have a parent that feels you owe them for raising you. Or you may have a friend that thinks you owe them for being by your side during a difficult time.
The truth is, you don’t!
You’re an adult and you worked hard for the money you have. You had to get up early, commute and work for 8-12 hours a day. They didn’t. That means you owe them exactly $0 of the paycheck you received.
What if they get upset?
Telling someone “No” can be hard. But if they get upset or angry it can make the situation even harder. These people probably know you very well and will try to appeal to your weak side. You may be called names, yelled at, or they may no longer talk to you. My motto is, if you get upset with me over MY money, then I have nothing to say to you. Unless you’re paying a bill or two at my house, then why are you upset about what I choose to do with MY money?
What if they try to make you feel bad for saying “No?”
Sometimes people will even stoop to this level. Trying to guilt trip you for not giving them what they want. As I said before. You don’t owe anyone. If they start making you out to be the bad guy for not giving them a loan, end the conversation immediately. These are the kind of people that will never see a red cent from me.
How to deal with persistent family or friends.
Finally, you have those people that will continue to ask you for money no matter how many times you’ve said “No” in the past. I don’t understand their thought process, but if they continue to ask, you continue to tell them “No.” If you feel it’s necessary, start ending the conversations every time they bring it up. Hopefully, they will get the hint and stop thinking of you as an ATM.
Aren’t relationships more important than money?
To an extent. On one hand, it’s pretty messed up to lose someone close to you over something as simple as money. To keep things conflict-free you may just want to hand over the cash (especially if it’s a small amount.)
On the other hand, this kind of behavior creates a dynamic for people to continue to come to you for handouts and loans. It’s a constant battle of doing what the other person wants to keep the peace. That doesn’t sound like any type of relationship that I want to be a part of.
Relationships work two ways. If not wanting or being able to loan money burns a bridge, it may be best to build a new one elsewhere.