By Robert Stitt
We all dread that “private” conversation when a family or friend pulls you aside and asks you to help them with their need for some money. Granted, you might have let your family know that if they need you, then you will do what you can to help them out. But what happens when their “need” isn’t what you would call a need, or when you just don’t have the funds to give at the moment? The old adage “just say no” might get them to stop asking, but it doesn’t bode well for family holidays.
Tonya Rapley is a money coach. She sums it up like this, “You don’t want to be the reason that a family member suffers hardship, but you also don’t want a family member to be the reason that you experience hardships, whether that be financially or emotionally as a result of the arrangement.”
If you are struggling to pay your own bills, can you really afford to give money that you don’t have? Can you risk dipping into your emergency fund? Psychologist, Jeanette Raymond says, “We’re chemically wired to be drawn to situations where we can rescue someone.” This means you have to be extra careful when a family member or friend tempts you to dip into your retirement fund to dig them out of a hole.
Black Enterprise offers a couple other things to consider:
- You don’t want to be an enabler. If the person asking for the loan is living beyond their means, you need to talk to them about a spending plan and perhaps selling off some of the luxuries they currently have. If they are not willing to live within their means, why should you enable them by letting them live off your hard earned dollars? Put another way, you are actually just setting them up for an even bigger fall later on down the road.
- Family loans usually end up becoming family gifts. More times than not, you are not going to get the money back. If you cannot afford to give the money, then you cannot afford to provide the loan. If you can, at least get the tax deduction for gift giving.
- You will be impacting other people. You may have been pulled aside to talk secretly, but don’t let that happen. Discuss the matter with all involved. Will the loan impact your spouse, your kids, etc? If there is truly a need, they will need support and encouragement from the family. If there is something shady going on that they don’t want known, it is best to avoid that anyway. As Black Enterprise puts it, “It’s not just your financial well-being that’s at stake.”