Many of us have been in the position where a friend or family member is asking for financial assistance. If you’re like me, you’ve even gone into debt loaning that money. If the person is close to you, it may be hard to say no. However, there are plenty of reasons you have to say no without feeling bad.
Dear Best Friend,
- I won’t be able to loan you the money you are asking for because I don’t have it. Even if this is a little, white lie, and you do have some spare cash lying around, you never had cash set aside for your friend, sister, mother or brother’s financial emergency. Look out for yourself first.
- I’m not loaning you that money because you couldn’t tell me what you are doing with it. Remember, if you are willing to loan someone money they should at least be willing to tell you what they need the money for.
- The reason I’m not loaning you that money is that you’ve never paid me back. Don’t get burned twice. If someone has already borrowed from you and left the loan unpaid, don’t lend them more cash. You’ll just keep digging yourself into a deeper hole.
- Another reason I’m not going to loan you any money is that you just spent a ton of unnecessary money. Tons of people spend money on new clothes and flashy things and then need to ask friends and family for money. Oftentimes, they pull their loved ones into debt with them.
- Lastly, I cannot afford to lose the money. Every time you lend someone money you are basically gambling it (except without any possibility of gaining more, unless you charge interest). You have to be able to afford to lose the cash you lend in the event that your friend or relative doesn’t pay you back.
I Will Still Help…
Although I won’t be loaning you that money, I will still help, and you can help your friends and family in a financial crisis too. Here’s how:
- Go over expenses with them. Offer to help them take a look at their finances. If you’re doing well financially, you may be able to help them get on their feet and stay there.
- Sit down and help them make a budget. Once you look at where their money is going, set up a loose budget with them. If you’re already budgeting, you can help your friend or family member better understand theirs.
- Identify places they may be able to trim. Talk with them about areas they may be able to scale down on (i.e. clothing cost, eating out, grocery bill, electricity, and water). Then help them decide on a way to track their spending and budget. (There are plenty of helpful apps and other tools.)
- Construct a savings plan. Once you’ve trimmed up the budget a bit, then help them establish a savings plan (even something as simple as the 52 Week Money Challenge). Even if it is only a few dollars here and there, it can make a world of difference.
- Provide support. If you’re able to provide your friend or relative with a little financial advice, you can also provide them with support moving forward. Personal finance doesn’t come easily for everyone. To prevent them from continuing the same cycle, provide them with continuous verbal/emotional support of their savings plan and goals and constantly remind them of what they are working towards.
Loaning people money is a sticky area. Don’t feel like you have to give anyone anything, especially if you truly don’t have the money to do so. Have you ever turned someone down for a loan? What was your reasoning?
Photo: The One Thing
Amanda Blankenship is the Director of Social Media for District Media. In addition to her duties handling everything social media, she frequently writes for a handful of blogs and loves to share her own personal finance story with others. When she isn’t typing away at her desk, she enjoys spending time with her daughter, husband, and dog. During her free time, you’re likely to find her with her nose in a book, hiking, or playing RPG video games.
If your friend needs to borrow funds to go into a prudent investment that returns 17% irr and 8% cashflow a year then its ok to lend out at 12%