Don’t do it.
That’s the first thought that flashes through your mind. A cautionary thought that is faster than a bug hitting a windshield!
Whether it’s a buddy needing a little weekend cash, or an adult child that has some serious bills, the problems are the same. You want to help out, but afraid you’ll never see those dollars back in your wallet ever again.
There are other good reasons to not loan money to friend and family. Here are a few:
It strains the relationship. Seriously, who wants to see that person spend money they don’t have? Then come to you for more. Money can be stressful enough, but add to it a loan that may not be repaid or repaid rather slowly makes it worse. It puts strain on setting the person in family or social situations.
Second, you might lose the relationship completely. If the loan involved causes enough strife you could end up losing a friend or family member for a long time or indefinitely. You have to ask yourself before you say yes, “Am I willing to lose the relationship over this money?”
It could be killing your own finances. I’ve discussed family loans before. Do not loan anyone money if it puts you in a precarious financial situation. You really aren’t helping anyone in this case. Think of it this way, are you really helping them learn a valuable financial lesson with constant bailouts?
You may eventually have to say no anyway. If the family member or friend continues to come back time after time for more of your moolah, you may have say no at some point. You’re not a bank.
If you are just in a spot and have to loan that dough, then you should first try to treat it as a gift. That way you don’t expect repayment and there’s no hard feelings. Or on the other hand, if it truly is a loan, then draw up some informal papers and agree to a repayment schedule.
I’m a sucker for my kids, and I’ll probably loan them money at some point in their young adult lives like my parents did for me. I’m just going to treat it as a gift and put it out of my mind.
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