Short answer? No.
Okay, okay, that’s probably not the best way to answer the question. But in general, my policy is that no, I will not lend money to friends or family. Why? Because anytime you lend money, you’re taking a risk. Do you really want to mix personal relationships and financial relationships? What happens if the person can’t pay you back? Has your friendship just been destroyed? Will you never speak to your brother again?
But my friend is in a really tight financial situation!
Okay, you’re like me. You’re a helper. You want to help.
Your friend needs $500 to pay some expense. It’s pretty urgent. And you have an extra $500 available.
Don’t lend it to your friend. Give it to your friend.
That’s right. Treat it as a gift. Give your friend the money as if you aren’t going to get it back. Maybe your friend will ultimately pay you back, and that would be awesome. But in terms of budgeting, in terms of future planning, treat that money as a gift. It’s gone. And if you can afford it, that’s a great thing to be able to do for someone.
I recommend going one step further – make sure that the friend knows the gift is a one time thing. You won’t be able to gift them money again, especially not anytime soon. You don’t want to become an inadvertent ATM for your friend.
If you can’t afford to give the money as a gift, if you think you will need it for bill paying down the road, if it will clean out your emergency fund, then you can’t afford to loan it either. Don’t be ashamed to say that to your friend. “I can’t afford to loan you the money” is an absolutely fair statement, and if there is a chance it will hurt your relationship, maybe that’s a relationship you should be rethinking.
So how can I help?
There are ways to help your friend other than handing them the cash that they need.
Are they trying to pay off a medical debt? Offer to help them negotiate with the provider to setup a payment plan. Are they looking to pick up a side job or a better paying job? Offer to help review their resume or be a reference. If they’re planning a yard sale, show up to help. If they know you’re good at budgeting and want you to take a look at their budget, by all means, show up.
And of course, be sure to be a good friend through the situation. Don’t flaunt your financial situation in their face. Don’t brag about being able to go out to eat or to buy expensive clothing. (I’m not saying you shouldn’t do these things, just be mindful about how you’re sharing the information.)
Mixing friendship and finances can lead to relationship strain, but some simple steps can help protect both your financial situation and more importantly, your friendship.