How to Help Family Members with Finances and Still Be Wise with Your Money

Lending money to anyone can be a risk, but when you lend money to a family member or a close friend who is just like family, you not only risk never seeing the money again, but also a break in a once solid relationship. The best recommended advice one could take is the "Just don't do it!" However, reality is, more often then not, most do. So if your one of those that have a hard time saying no, at least protect yourself, your money and your relationship by just following a few guidelines to loaning family members and close friends money. Do not find yourself sitting at the kitchen table hearing through the grapevine that the family member or friend you just lent a large sum of money to is now eating dinner out every night and hitting the clubs afterwards.

When you first get that call with the plea of desperation on the other end, begging to you to lend them money, there is just no other way, set the ground rules if you are going to say "Yes."

What is the history of the borrower? Is there unsavory activities or habits this person has that may have led them to their current financial situation? Is there a history of gambling, drugs, or excessive alcohol use? If there is, your answer should be a flat out "NO". By lending them money you are enabling them and the likelihood of you ever seeing your money again is nil to none!

If he later is not the case, you do not want to end up having to play the role of Spanish Inquisitioner so draw up a contract. It can be as simple as a typed up statement that covers the amount you are lending, interest you are charging if that be the case, payment amounts and due dates and any other details you have discussed and ten make sure all parties involved sign it.

Make it very clear to the borrower that you expect to be paid back and not when they can afford to pay you back. Many people have the tendency to say, "When you have the money you can pay me back then". Do you think they really are going to say they have the money even if they do, more times then not, no. . Make sure you are clear about your time frame and set guidelines to where if they are late with a payment there will be penalties. If it were a bank loan, they would have to pay a late fee, why not you.

If you are lending an ungodly amount of money to a family member or friend, get professional help in drawing up an interest bearing contract loan. In the end, it will pay off when it comes to the IRS. Often times, if the large amount being lent is towards a home you can have the debt officially recorded with the county clerk as a mortgage debt against the house.

Some questions you need to ask yourself before handing over your hard-earned money to a family member or friend are these:

1. Can you afford to lose this amount of money that is being requested?
2. Do you have the money to loan or will it hinder your own finances? If you are going to have to rob Peter to pay Paul, you should not lend.
3. What is the need for the money? As mentioned before, know the history. Is the reason for the need of the loan a reasonable one?
4. Have you lent this person money in the past and never seen the money again? If that is the case, close the checkbook and just say "no".
5. Does the borrower have any other options available to them? Have they checked into them, and if they have and where denied, why?
6. How will you lending the money out to the borrower affect other members of your family and their relationship with the borrower if the borrower does not repay the note? Will this cause a family rivalry?

If you answered 'no' to even one of these questions consider the loan you are about to give a loss. More then likely you will never see that money again so be prepared to write it off. If you really want to help a family member or close friend out financially, sit down with them and discuss their budget. Offer to help them work out a budget plan they can work within. You could even offer to be their accountant of sorts, where you handle their finances, they hand over to you their income, you pay their bills out of it and allot them an allowance until they get back stable again and are better able to take over and do it for themselves. Education is a powerful tool. Everyone wants to help their loved ones in a time of need, and there is nothing wrong with that, but you have to protect your well-being and finances in the process.