Someone you’re close to asks you for money.
Many of us have found ourselves at this crossroad at some point. These are typically trying times when you’re torn between extending financial help to a loved one or sticking to your guns to avoid an uneasy or strained relationship in the future.
They say that money and friendship rarely mix, and this becomes evident when a close friend or family member asks for a substantial sum of money. Knowing how and when to draw the line between financial responsibility and family expectations can save you a myriad of potential personal problems.
In fact, according to The Simple Dollar, the bitter truth is that regardless of the nature of the outcome or aftermath, things will never be the same again after handing a wad of cash to your closest cousin or elder brother.
At this juncture, you have three options at your disposal. Here is a quick primer to each of them.
Option 1: Cave to the Pressure and Give Them the Money
At times, a friend/family’s need for money might seem so urgent and vital that it is virtually impossible to say “No” right to their faces. It could be that they need to offset an emergency medical bill, for instance, or are confronted with legal issues.
Most of the time, however, your relative’s need for cash is not that pressing or urgent. People who need money ASAP tend to spend it frivolously.
If you are not entirely convinced that this person truly needs the money, try to intentionally stall. You might be surprised to learn that they don’t need that money as much as you thought.
Nonetheless, if you are going to offer someone a neat sum of money, you ought to make a few things clear to them. For starters, let them know that you don’t expect it back, and that you have willingly decided to let them have the money without attaching any emotions or expectations to it. This is a polite way of saying that you have no qualms about placing family or friendship before money.
If this person is a habitual borrower, it is imperative to let them know that you are not exactly thrilled with their habit. If it helps, let them understand that you are not comfortable with using money as a short-term fix for major underlying problems. In short, make it clear that this is a one-time gift and not a show of your unconditional generosity.
Option 2: Loan the Money
J.D. Roth from Get Rich Slowly writes at Time, that finding a way that doesn’t involve handing someone cash could be the most practical and constructive way of navigating such a dicey situation.
Sure, throwing money at a problem can keep a nagging friend or relative at bay. But it could also only be a temporary solution to a larger problem. So, instead of offering financial aid, make an effort to understand the would-be borrower’s problem first. This way, you can discuss and come up with better avenues for them to earn that cash without you having to hand it to them directly.
That help could take many shapes: Referring them to a job opportunity, making a helpful introduction, offering constructive advice on managing finances. In the process, one of two things could happen: They might realize they don’t need the money enough to make the effort; or they could end up not just with the money but the skills to make it and keep it. Either way, this could create a win-win situation.
In the event that you decide to loan them the cash, take some measures to cushion yourself against future agony:
- Make sure you are only lending them money that you can afford to lose. In other words, don’t jeopardize your cash flow or your investments to help someone out, as you are not guaranteed to get that money back.
- Avoid handing out money without some sort of agreement, in writing, as to the terms of repayment. This way, they are contractually bound to pay you back, kith or kinship notwithstanding.
- Draw up a repayment schedule. Discuss any issues that might crop up in future, but remain firm about seeing the repayment schedule through to completion. Also, look into legal remedies to protect your loan.
Option 3: Decline
Saying “no” to a friend or family member is not easy. But at times it might be the best option, particularly when dealing with a perennial borrower who has a history of poor financial management. If anything, Moneyning advises that denying such a person direct cash aid is the first step in helping them come to terms with the harsh reality of a world where money is either earned or invested.
Of course, it’s hard not to let emotions or personal feelings cloud your decision. But as much as you are expected to help out your family or friend whenever they are in real need, remember that you are not obligated to accommodate every monetary request they make.
Casey Meehan is a writer at Stock Hax, a blog about personal finance and investment strategies. He is also the founder of Epic Presence, a digital marketing agency in Chicago.