Money for Family and Friends Could Lead to Emotional or Financial Disaster

Kimberly Watson, Editor in Chief
September 10, 2012 /

Suddenly, a desperate family member or friend approached you, pleading for financial help. In the present economy of today it could create a dilemma for you between feelings of obligation to help, or can you really afford the burden of lending money?

This question is expanded by the sum and any terms and conditions related to the loan and that it could cost you in the future if the borrower is unable to pay it back. You should also determine what the money is needed for. However, the remains that you as a concerned person are involved in lending money and placed in an emotional and practical self conflict, which is not an easy place to be.

As generally recognized, borrowers of money need to assess the situation carefully; but this also applies to the lenders. It is sometimes difficult to detach a personal involvement from a business transaction, especially regarding, lending money to family and friends. The risk is always present that a relationship could be destroyed by a financial influence, especially if the borrower is unable to repay the loan, which unfortunately, is a frequent occurrence.

A practical and perhaps cynical way of viewing, lending money to a friend is to assume that it is a gift, never to be returned! This perception will help you realize that you have been emotionally hooked, but should the borrower default in the payment, it need not prejudice your relationship.

One golden rule worth considering, particularly with a family member is only “give” money. Make a commitment that it is not a loan and resign yourself to a financial loss, on the premise that retaining the love of your family is more important than any potential issue regarding, lending money.

 It is a sound saying that you cannot mix business and pleasure, which in this case translates to lending money to family and friends. If you decide to lend the money on a repayment basis, then you must treat it as a business deal, the same as a bank would and make it subject to a written agreement. With this method, you can determine expectations of payment such as interest on the money, automatic debit facilities and even collateral.

Should you try to compromise between a gift and business transaction, it will lead you into all types of difficulties and into the realms of horror stories you have heard about lending money to family and friends. Dealing with the situation in this loose way, will result to the loan being reviewed by the parties involved as a kind of loan, or a kind of gift. Nevertheless, you could probably kind of say goodbye to your money!

If you have been persuaded into lending money and are waiting for a late and due payment, that will not arrive, tension, disappointment, frustration and anger are only a few of the emotions you could experience. This is especially, if your own financial position is not that healthy. The emotions are heightened if you see the borrower spending your money on entertainment, cigarettes and all the good things that you either consider a waste or cannot afford.

Lending money for financial help in an emergency is different to helping with everyday expenses. The latter shows clearly that this is not a short term problem and you should therefore, be aware. A crucial aspect to this is that generally, those who are habitual borrowers are unable to refuse themselves what they want. In other words, they have difficulty in defining the differences between “wants” and “needs”, so do not feel guilty about saying “no” to them!

 

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