“The first byword is that lending to family and friends on a handshake is probably one of the most speculative investments you’ll ever make.” 

Catherine Williams

Many of you might have gone through this experience. it’s quite an awkward situation when your friend/family member, or any relative asks to help with money.

Money topic, especially when it’s about loaning a family member/friend, might be a topic of stress. There is kind of an unwritten rule which we know, that do not mix money with relationships/family. 

Sure, there might be few successful stories but still today there are many examples like two siblings/brothers do not talk with each other or children who became bitter with their parents over a money issue. Money is a major topic of argument in many families. It can break up relationships, and money can tear a family apart.

But the dilemma is what to do when such a situation arises? How to deal with it?  Let’s see the possible solutions which can help:

• Give a loan which you can afford to never see again:

Loaning a large sum to any family member/friend could build stress in a relationship. Giving a loan to a loved one, need to be an amount that you can afford to never see again or expect not to get back.

• Set your mental expectations

Set your mental expectations that the given loan money(hopefully not a large amount) not going to get repaid. Treat this money as a gift. It will help you not to stress out and be disappointed. 

• Formal agreement

When it comes to loaning a large sum then it could be a prudent idea to make a formal/mutual agreement. This may not be applicable for all friends/family members, but where you know that a particular friend/member is financially irresponsible.  People may take advantage of their family members when asking to borrow money. The borrowing family member knows that their family will be more than willing to help them out. Hence, they can borrow money without the intention of ever repaying the loan because- ‘it is family’. Making agreement with a family member, may sound strange, but doing so could be a safe option as long as it won’t impact  your relationship, negatively. 

But remember, even with the formal contract, you should expect the loan amount won’t recoup fully or partially. 

• Offer some non-financial help:

You can help your borrower friend/family member partially or with some money which you can afford to. But if you can’t or do not wish to give any help then suggest some ways like sources to get a loan, help in managing debt, budgeting, or an advisor recommendation who can help. You can also ask for what they need money like for covering their daily expenses, with medical /hospital expenses, bills or rent payment, etc. If you can help fulfill any particular expense for the time being, you can go ahead.

• Show some concern:

When your friend or family member, asks for a money loan, make sure to be compassionate and understand their situation. Do not criticize their lifestyle or their spending habits. People turn to their friends/family members to borrow money as they are more comfortable discussing personal finances with their friends/ family members. Also, a major reason, people may ask to borrow money from their family is because we may feel obligated to help out other family members during their time of need.

If you are planning to lend money to any of your family members or friend, then make sure to set clear boundaries. Do not put your financial security at risk.