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.
Megan is a 30-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:
In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance. It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information. It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck. While that was working for me, clearly I needed a better plan.
While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.
Except that’s not what an emergency fund is for.
So I did a lot of research, read a lot of blogs, and decided that I needed a plan. I needed to budget. I needed to know what I was spending my money on. I needed to prepare for the future.
I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way. I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.