lending money

Many of us may have been in a situation where a family member or friend has asked to borrow money. In 2011, 7 percent of homebuyers borrowed from a relative or friend to help purchase a house, and 14 percent of business owners also borrowed from family and friends to help cover costs. Lending money can help someone in need and create goodwill. But lending money also can be cause for harm in a relationship or lifestyle.

Here are some tips on how to lend money and still keep the relationship on track:

1) Don’t lend money you can’t afford. If you are struggling with your finances, lending money to another person struggling with finances will not only hurt the relationship if it is not paid back but also will set you back financially, resulting in a double whammy. Make sure you prioritize your personal finances so the money will not adversely affect your living situation.

2) Consider it a gift. If you can afford to lend it, it is safe to assume that the money will not be paid back. If the person borrowing doesn’t pay it back, you will not be disappointed and it will not affect the relationship. If you are willing to take the risk, the gift can be seen as a nice gesture to help someone in need. Relationships are more important than money, so if you do end up getting paid back, it will be a nice surprise.

4) Know when to say no. Consider why the person needs the money. If you feel the person is borrowing to fund their lifestyle as opposed to paying for emergencies, you are only supporting their habits. Saying no may force them to re-evaluate their own financial situation. In the long run you will be helping them out.

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[4/14/15] The first rule of loaning money to friends.