4 Rules of Thumb on How to Lend Money to Loved OnesMay 18, 2021
What are the financial rules of thumb?
When people think about borrowing money, the first thing that comes to mind is stuffy bureaucracy and intimidating bank loans. However, a lot of the money that people tend to borrow and lend on a cash basis actually comes from friends and family. When things go well, these kinds of personal loans strengthen bonds and bolster relationships. When things go badly though, lending to friends and family is nothing short of a nightmare. Lifestyle Columnist Jacqueline Curtis cautions that “Lending money to loved ones is often a bad idea because it puts your relationship in jeopardy. But when someone you love is in a serious bind and you have the means to help, it can be impossible to say no… when you lend money to friends and family, be smart about setting up the terms and a schedule for repayment.”
Here are a few tips to follow when lending to loved ones:
1) Make a Clear Distinction Between Gifts and Loans
The close relationships which people form with friends and family often misleads them into blurring the lines between a loan, and a gift. Being confused about this is the worst possible way to enter into a financial agreement. Always start things off by having mutual consensus over what is being exchanged.
2) Be Formal
Lending money can start off being perceived as a kind gesture. However, if any issues arise, resentment will start to drive a wedge between you and your loved ones. This is why it’s always best to accompany any loans you give with written contracts. At the very least, draft a promissory note so that whomever you lend to won’t be able to lie about repayment.
3) Expect the Worst/Hope for the Best
With or without contracts supporting your loan, the fact of the matter is every human being is capable of breaking their word. Especially under desperate circumstances. The moment you lend out money to friends and family, don’t expect to be paid back. Only lend out what you can afford to write off as a total loss. That way, it will be easier to forgive and forget in a worst-case scenario.
4) Don’t Blindside Your Spouse
If you happen to be financially accountable to a spouse or partner, never make unilateral decisions when lending out money. Get input from your partner so that everyone affected understands the risks. Under the wrong circumstances, withdrawing money from shared accounts can end up costing you the relationship you have with your borrower, and the relationship you have with your spouse.
Money is a very volatile thing. When managed well, it can enrich relationships, and attract a lot of blessings. On the other hand, when managed poorly, money can inflict toxic destruction on our lives. Always practice wisdom when lending money to friends and family. Remember that even though you might be willing to sacrifice anything to help your loved ones, if you allow misunderstandings to take root when lending money, your life could end up disrupted by conflict. Be reasonable, be thoughtful and be organized about lending money. If you like what you just read from our blog, you’ll love the various informative courses, workshops and events listed on our websites and social media. Whether you’re interested in personal development, or overall improvement of your business, give us a call at 1 (888) 823-7757 to find out how The RISE Academy can help you break past your daily struggles and start soaring in success. For business development coaching by Richard Martinez, call at 626-202-2291 or follow us on Facebook and Instagram.
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