(FinancialHealth.net) – Your friend is laid off from a job they expected to work for the rest of their lives. Your adult child needs urgent dental work they can’t afford. A neighbor’s dog is struck by a vehicle and needs urgent surgery. Your niece needs $10,000 to buy her first home. No matter who is asking, or what they’re asking for, it’s easy to feel awkward and put on the spot.
Sound familiar? That’s because nearly all of us have been asked for money by someone we love at least once in the past. But talking about it, or working up the gumption to say no, isn’t always easy. Our culture simultaneously makes it taboo to talk frankly about money while also obligating us to help others around us.
In the right situation, lending money can truly help someone survive and even thrive. But it’s just as likely to enable reliance and bad financial habits. So, the next time you’re considering whether to say yes, keep these important points in mind.
Can You Afford It?
This should be your number one consideration. If lending money will put you in a financial bind, don’t do it — full stop. You can’t help anyone out if you end up bankrupt in the process, and you just might even find yourself in the other person’s shoes.
As for how much you can afford, that’s a bit of a tougher question to answer without knowing your unique financial picture. Saying yes, however, shouldn’t put you into a situation where you struggle to pay your own bills or have to significantly change your normal lifestyle.
Is It a Want or a Need?
Is the person asking you for money in need… or in want?
There’s a big difference between an adult child who wants a loan for a brand-new TV and a dear friend who needs money for a life-saving surgery. One is necessary for the person’s survival, while the other is a simple want they could save up for with good financial habits.
One of the “golden rules” of good financial management is that you should never borrow money for wants if you can save up or pay it off on your own. This is just as true for credit cards and bank loans as it is for borrowing from other people. By constantly saying yes to loans for wants, you enable the other individual to keep spending money they already don’t have.
And it might even mean you can’t lend to someone who really needs it later on.
Are They Willing to Talk Frankly About It?
Beware the borrower who shies away from frank discussions about finances. If someone asks you for money, they should be able to justify why they need it, how they plan to use it, and (if you lend) how they plan to pay it back. Furthermore, they should be open to facing their own financial mistakes, if they apply.
Someone who “just needs money” or seems to get angry when you question their level of need is sending out major red flags. They’re also telling you that they don’t appreciate you enough to be willing to hear you out and/or fix their finances so they can avoid borrowing in the future.
Can You Afford to Gift It?
Lending money to family and friends can inspire serious resentment and even total relationship breakdown, especially if they can’t or won’t pay it back. It’s almost universally better to give the money away rather than requiring them to pay it back. Think of it like contributing to a good cause… but be sure it really IS a good cause before you say yes.
Gifting also tends to be a better option for people who are struggling to claw their way out of debt because it isn’t yet another bill they need to pay. Still, be mindful of the fact that too many “gifts” will often lead to over-reliance on your generosity.
Here’s one last thing to consider: if you feel anxious about whether you’ll get your money back, think of it like a red flag. It might mean you really can’t afford to give at the moment after all, or that your instincts are telling you it’s not the right time to say yes. Sometimes, declining to help is the most supportive, loving thing you can do for everyone involved.
~Here’s to Your Financial Health!
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