One of the biggest financial and emotional challenges couples can deal with is deciding whether or not to lend money to a loved one.
We’ve had relatives and friends have something pop up that financially threw them off, at least temporarily.
Whether it’s family or a close friend, simply looking at the numbers isn’t enough. Besides analyzing the financial side, it’s important for couples to discuss openly and honestly how they feel about the situation itself and go over their own finances.
I had the pleasure of speaking with accredited financial counselor and author Jen Hemphill about steps you can take together.
It’s not easy, but you two can find a solution that allows you to help your loved ones without putting undue stress on your marriage or money.
How to Decide On Whether to Lend Money to Family and Friends
First off, when couples reach out about their dilemma, it’s because it’s not a black and white situation.
Most would agree that if they saw a loved one get hit with an unexpected emergency they would help out.
The tricky situation is when it’s either a loved one with repeated ‘emergencies’ or they are in the middle of a financial turn around and they don’t really have much of a financial cushion.
The two of you may be in the middle of paying off some high interest debt or saving up for a huge goal like starting a family or buying a house. You will be needing that money in the near future.
How do you decide what’s the best course?
It starts with answering a few key questions between the two of you and then checking in with your loved one.
- Are you in a financial position to help out? It may very well be the case that right now you cannot lend money without harming your own finances. (Don’t worry, in a bit I’ll share ways you can still help.)
- Is this a genuine emergency? Has this loved one kept having them? Unexpected things can and do happen to all of us at one time or another - job loss, car accident, or a natural disaster. However does this friend or family member have a pattern of coming to your for emergencies?
- If we do lend money, are we really helping or are we enabling? In some cases you may discover that you are the emergency fund for that particular relative or buddy. You need to do an honest review if loaning money is good thing or merely patching up a bigger issue.
So how can you help out without adding pressure to your finances and relationship?
Let’s start with ways you can lend a helping hand without money. We can then look at how you can protect your relationship and finances if you do a loan with your loved one.
Alternatives to Loan Money to Family
After some conversation, you two may decide that lending money isn’t something you can do, for whatever reason. That’s okay. You should not feel bad nor should that loved one make you feel guilty.
There are still plenty of ways you can assist them.
- Give a gift. Instead of loaning them money, set aside an amount that you are comfortable with and give it.
- Offer to work with them on a plan. Jen has done this with her loved ones, but you don’t have to be a financial counselor to do this nor do you need to see all of their numbers. Perhaps you can share your budget spreadsheet.
- Connect them to local resources. Perhaps there is a bigger issue involved and they need assistance from a community or state source. You may be able to get them in touch with those programs or give them a ride if transportation is an issue.
Whatever you can give, just know it helps.
How to Responsibly Lend Money to Family
You may find that you’re both comfortable with lending money to your family or friend. Here are some ways you can maintain that relationship.
- Be clear about expectations. Sit down and discuss exactly what each of you expect with paying back this loan. Being open with the time table and payments can minimize hurt feelings. I’ve heard some families get upset because they vaguely said, ‘pay us back when you can’ and then they see on social media sometime later the person went on a vacation, but they still haven’t gotten their money back. Whatever you decide, just make sure you are both on the same page.
- Write it down. Once you’ve established a solution you’re both okay with, type up an agreement with each of you having a copy.
- Never lend money you can’t afford to lose. Your relationships are important, so before you loan out money talk it over. Are you going to resent that person if you don’t see that again? Are you two going to be financially okay if you do loan out?
Another great solution that Jen and her family have done is incorporating giving into their budget.
They have made automatic transfers into a dedicated savings account. If a loved one reaches out, they talk it over and pull from there if they need to.
This system allows them to give money for their family and close friends without harming their marriage or money.
Your Take on Family and Money
I hope these tips make the conversation about lending to loved ones easier.
I’d love to hear from you - how do you handle helping our family? What boundaries do you have with friends with money?