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5 Simple Rules to Loan Money to Family and Friends

Have you ever asked a friend to loan money? Did you ever lend money to a family member? What were the outcomes of the financial transaction?

Have you been asked to loan money to a family member or friend? I’m sure you have, and a question has been on your mind: Should you loan money to family and friends?

Some time ago, a reader asked me how to respond to family members who constantly asked for loan money. She cared for their well-being, but it was beginning to take a toll on her relationships.

One shared, “I continuously get asked by different family members and extended family members for money because they assume I make a ton of money.”

This is a tough situation because of family dynamics. For simplicity’s sake, you love them, and that feeling can often lead to irrational decisions affecting your finances.

Here’s the straightforward answer: it’s not your role to loan money to family or friends.

But that’s easier said than done.

She added, “I just learned to handle my finances in a certain way that allows me to live a comfortable life. But I find it hard to say “no” to my family [who] often never pay me back, and I look like the bad person for asking for it back. So what can I do?”

What to do when family or friends ask for money

There are three ways to approach this situation: You can loan money to your family, ignore them, or tell them the truth.

With the reader, she’s been actively managing her finances to live a certain way. If she were to loan money that she actually needed, it could hurt her long-term financial well-being.

So, what’s the consequence of putting your financial wellness at risk? You’ll end up being the person asking others to borrow money.

There’s absolutely nothing wrong with helping someone in financial trouble. But there is also nothing wrong with choosing not to loan money to family or friends.

If you can no longer help, it may be time to say no. And if you’re feeling stressed every time you’re asked, then it’s time to say “no” again. Be clear and direct. Share your finances if it helps.

In her award-winning book Gold Diggers and Deadbeat Dads: True Stories of Friends, Family, and Financial Ruin, Valerie Rind shares compelling stories of people who borrowed and loaned money to family and friends and the turmoil that ensued. It didn’t look good on both sides. In fact, Valerie recommends never asking or lending money to a family member (not even your partner).

How borrowing and lending money impact relationships

Have you ever asked a friend to loan money? Did you ever lend money to a family member? What were the outcomes of the financial transaction?

When money and family are involved, emotions run high. Chances are your decision to lend money or ask for money is based on an emotional bond. Because it is influenced by our feelings, it has a very emotional association. Whichever side of the coin you’re on–borrower or lender–things can and often will get complicated.

Dr. Brad Klontz recently wrote for Psychology Today about how lending money to anyone can have the opposite effect.

Dr. Klontz writes, “Is this a one-off situation or is it part of a pattern? If it’s the latter, then loaning them money is probably not going to help. In fact, you might be hurting them. You may be financially enabling them. Financial enabling is giving or loaning money to someone in a way that supports their bad financial behaviors.”

Financially enabling them can reinforce the underlying problem.

And reinforcing the underlying problem means you’ll be asked to lend money again in the future.

As I’ve written before, money is a tool. Think of it as a hammer. You can use it to nail a photo on a wall to enjoy. Or, if used improperly, that same hammer can punch a hole through the wall.

Sure, the money you lend can help a loved one in need, but it can also hurt your relationship with them.

Rules to loan money to family and friends

Here are the rules that have helped me peacefully lend money to family or friends.

1. Have a money philosophy

Have a money philosophy with guidelines to help you manage money effortlessly. Part of my rule is not lending money to anyone. Basically, if I need the money or expect it to be paid back, then I don’t have money to give. I give money when I can, not loan money.

2. Be clear and set realistic terms

If you’ve broken rule #1 and are compelled to help regardless of your financial needs, then be clear about the loan. Set realistic terms and a deadline for repayment so that everyone understands. Writing up an agreement and emailing a calendar reminder of the due date is necessary. This can remove the awkwardness of asking to be repaid.

3. Only give money you can afford to lose

Simply put, if you can’t part with the money, then don’t loan money. Having a budget and financial goals helps you keep focused and on the road to financial wellness. That’s because you know each dollar has a purpose. Knowing that purpose can help you respond guilt-free to any loan money requests.

4. Set it free

It helps to intentionally let the loan go. You loaned the money, and once it’s in the hands of the borrower, it’s there to use however they see fit. Constantly thinking about the loan or mentioning it to others will only cause anxiety. Free yourself from the stress of a loan collection.

5. Forget about the money

It will drive you nuts loaning money and seeing family and friends owning things and doing things you can’t afford. Don’t share how you’ve seen pics of them doing awesome things or buying nice stuff. When you loan money to anyone, they have the right to do anything with it. It’s no longer your place to tell them how to spend it. The only right you have is to say “no” to lending money to friends or family members in the future.

If they happen to come again, you can assess your finances and their needs and make decisions based on the new circumstances. You can also send them articles you’ve read and financial resources you’ve used (and found on this site).

What rules do you have for loaning money to family and friends?

Jason Vitug

Jason Vitug is a bestselling author, entrepreneur, and founder of phroogal.com and thesmilelifestyle.com. His purpose to help others live their best lives through experiential and purposeful living. Jason is also a certified yoga teacher and breathwork specialist and has traveled to over 40 countries.

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