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Most likely, it has occurred before. Your phone buzzes, and it’s that one friend or relative asking you for a loan. Or perhaps your best buddy from college is in some money trouble. Situations like these can often be unpleasant irrespective who is asking. Although it’s natural to leap at the chance to assist someone you care about, there are several things you must consider before you act. 

Start easy & don’t immediately reach out for your checkbook. 

Pause to ask yourself – Are you able to make a loan? 

If not, how do you say no? 

And if you are, how will you ensure you will be reimbursed? 

Remember, no matter how emotionally charged the situation is, it’s important to think before you act.

Read 5-principles-of-money-management-you-should-follow

You can consider some of the following actions the next time a family member asks for money:-

Review your Finances

Analyse & understand the situation first. If you are under debt already & are struggling to meet your living expenses, do not even consider helping someone else. 

It’s okay to say a no. Ask them why they need the money before you agree, and let them know you must assess your finances first. 

Recognize the reason behind their request

We are in trying times where even those with sound financial practices struggle because of a loss of employment or a decline in their business. If your budget permits, you might assist them if they need money for food, their child’s school fees, energy bills, rent or mortgage, or a medical emergency. But it’s necessary to draw a line. It might damage your connection & make you feel bad for a certain time but it’s actually important. Sometimes, it would be wiser to decline frequent & routine requests respectfully.

Consider alternatives

Sometimes you can also help someone with services rather than monetary terms. For example, you can help someone earn a passive income by helping run house errands or baby sitting. 

Read ​​most-effective-five-steps-financial-planning-process

Say “No” politely if you want to refuse to lend money

Politely deny the request if your budget won’t allow it or if you have enough money for your necessities. Avoid taking out loans from your relatives, using your emergency fund as collateral, or using money set aside for future costs like rent or tuition as collateral. Unlike banks and other lending agencies, you cannot impose harsh payback conditions on them. Planning your future financial flow solely on the promise of reimbursement from your family would be difficult. You can stay caught up on commitments if you get the money you expect. Say no respectfully and immediately if you feel you cannot or do not want to assist the relative. Although it is not required, politely explain to them why you cannot give it now.

Make the Terms of Repayment Clear

Ensure you are clear about your expectations when lending money to a relative & expecting repayment. This will help avoid a lot of unnecessary feuds. You can put terms on paper & break down the repayments monthly or annually, however fits.

Consider the Rate of Interest

When it comes to helping out family, most of us tend to lose sight of the opportunity cost, risks & returns we would normally consider. If the amount in question is quite substantial, it’s advisable to consider the interest amount. 

You can also get a financial advisor on board to keep things clear & neutral.

Wrapping Up 

I understand there is no simple answer to these situations, so whether you say yes or no, the choice is entirely yours to make. But perhaps, act more financially wise the next time a relative asks for money.

Feel free to write to me for any financial advice.