When you’re known to be someone who gets his or her monthly paycheck, or if you happen to appear as if you’re a little well-off, the time will come when you will get a knock on your door, or as people would usually do—send you an email or a Facebook message asking if they could borrow money from you. The letter or text would begin with a “Hi, how are you…” and after a short chitchat, the family member drops the bomb:
“Do you have a little extra cash I could borrow?”
It’s a script that has been spun since the dawn of time, and yet, you’ll find it a little hard to respond so quickly, knowing doing so can result in dire consequences. Even if you don’t believe whatever reason or sob story your family or relatives will tell you, more often than not you’ll find yourself eventually feeling the need to help them out for the sake of keeping the peace.
Understand, beforehand, that there are risks when you lend money to a family member or relative—mainly them not paying you back, which will eventually lead to arguments, frustrations, and bad blood. But if your mind is made up and you have indeed decided to lend them money, here are a few important reminders before you do so:
9 Important Things to Consider Before Lending Money to Family
1. How well do you know this family member? Do you know his or her track record when it comes to money? What is his or her reason for borrowing money from you? Just because a person shares your last name or just because you’re related, it doesn’t mean you are obligated to lend money even if you don’t want to. Does this relative have a good reputation in and out of the family reunions? Let your trust-level dictate whether you think this family member legitimately deserves to be lent money—especially when we’re talking about a big amount.
2. Trust your instinct. If you are in doubt, and you have a bad feeling about it, don’t push through with the lending. If you don’t know his or her background but want to consider helping, it’s best to call other trusted family members to get confirmation whether said borrowing family member is dependable. The bottom line is that it’s your money and you can do whatever you want with it. Lending money is still a risk, so you should take precaution even if it’s family you’re lending to.
3. Do you have money to lend? Is the money you’re lending not going to affect your own personal monetary goals or your emergency fund? This applies to some people who don’t have extra money and yet feel like it’s their duty to save their family members from their financial needs. Compassion is a good trait, but we can’t always depend on our emotions, especially when it comes to lending money.
4. Are you ready to NOT get paid? Or get super slow payments? Think 15-day paycheck installments turning into once-a-month payments, to quarterly and then annual payments. Family borrowers would assume that you won’t be as strict considering you’re not really a bank or a loan shark. Some people automatically assume that “borrowing” money from family members is another way of “asking money for free.” That’s why it’s best if you…
5. Set your lending rules. Like creating your monthly budget, you have to stick to these limits. Unless, by any chance, you’ve got a tree that bears fruit made of real money, you should remember that you’ve been working and saving money for your own goals and dreams. Lending money to your family is similar to playing in a casino—you only bet money you can afford to lose. For instance set a rule where people are only allowed to borrow up to a maximum of $100 from you. After establishing a specific “borrowing limit” in general, regardless of who borrows (family or not), be sure to…
6. Communicate your rules consistently. Desperate people will do anything to make ends meet. They will probably agree to any of your “rules” even if they have no intentions of meeting your expectations. Be sure to consistently (and nicely) remind them of the money they owe you and establishing deadlines both of you have agreed upon. Take note, you also have to be fair to yourself when it comes to debt collecting. You can’t keep on adjusting deadlines because your family member promises to pay you. Don’t let other people milk you dry when it comes to your personal finances!
7. Leave a paper trail. If you want to track the frequency and guarantee of payments, keep a record of all your transactions with said family member. To avoid awkwardness, simply do this casually like it’s a normal thing for you to do. A small logbook or an Excel file would be efficient for this practice. Make the borrower acknowledge the payment with his signature and the date of payment. When the time comes that the borrower says that he or she is already paid when facts state otherwise, you’ve got the proof to back it up. Consider it a form of damage control. You can even create your own written contract, if you want.
8. Keep emotions out of it! Think of it this way: did you earn your money by being overly-emotional at work? No. You earned your money because you work hard for it. Be objective when you’re lending money, and if your family member borrowed a huge sum of money from you, he or she should be able to return the favor.
9. They’re still family. Whatever happens—should the situation turn sour or maybe you’re still on the fence about lending them cash, at the end of the day—they’re still family. They are not perfect and so are you. Who knows, you might be on the other end of the stick someday. And remember, just because they owe you money does not mean that they owe you their lives and you should keep rubbing it in their faces. They’re just human beings who happened to be related to you, and maybe they just needed a little help in this rough patch in their lives.
If you’ve got a family member or relative who’s deep in debt, you don’t have to be the one to save them from their financial crisis! Keep all relationships intact and drama free by simply referring them to a reputable debt relief company like Financial Rescue LLC and help alleviate their financial stress. Just call 1-877-97-DEBTS and find out more about our excellent debt settlement programs. You can also visit our website, www.financialrescuellc.com for more info!