It pays to use caution when lending money to family and friends
Lending money to family or friends can be a complicated and emotional topic for many people. At this point, a friend recently confided in me about money issues with a family member.
This family member was getting ready to ask my friend for money. They could see all the signs, said my friend. While they hadn’t spoken to each other for several years, this person suddenly took an interest in my friend and even inquired about their recent promotion at work.
Even though my friend wanted to believe that this sudden interest in their life came from a good place, they had seen it happen before with other friends and family. The truth is that for many first generation black wealth creators there is a responsibility to provide for the needs of family and our friends.
As a creator of wealth myself, there is a sense of responsibility that we need to distribute the wealth and use our own success to help and financially support others. Why? Because these first generation wealth builders tend to be hard workers, and they incredibly appreciate everything they have. In addition, they are one of the first generations to move beyond the wealth gap to find financial success.
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I see the recurring theme of the family asking a first generation wealth creator for excessive loans or financial aid crop up in several cultures. Of course, it doesn’t hurt to want to help your family or friends when needed. In fact, I believe it can be beneficial for a first generation wealth creator to reinvest in their community.
However, it is problematic to continually allow family members to give them money whenever they ask for it. This is especially true if the financial support provided to family members can have a negative impact on you or your personal financial goals and obligations.
More money is not always the answer
You may be worried that lending money will derail your relationships and hurt your financial health. If so, I recommend following a few money giving rules that will make room for giving while creating healthy financial limits.
Do you always have the same person asking you for money? Maybe it is time to tie some education to your financial support. Two examples that I see regularly are:
- Family asking for money to correct a bad financial habit like credit card debt, gambling debt etc.
- The family asks for money to cover their “wants” – not their “needs”.
If you find that your family members are asking you for money because they are making financial mistakes that will continue to hurt them in the long run, giving them money will not end the problem. In doing so, you have become a facilitator. Likewise, if you find that you are consistently paying a parent’s cable bill or helping them finance a brand new laptop or iPhone, it might be time to have a serious conversation with them about their issues. wants and needs.
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In these situations, a third-party financial professional can help them recover from their bad financial habits. Get the advice of a credit counselor or go to a pro bono financial services company can begin to put them on the right financial track.
If the constant money “demand” doesn’t stop, you have a big decision to make. Ask yourself: does supporting this person financially help? Is this a fulfilling way for you to spend your money? If the answers are yes, you need to add a budget line for them in your spending plan in order to be ready. However, if the answers are no, you can set a limit with that person, even if it is painful at the time.
Also, when you decide to give money to a friend or family member, there is a temptation to call it a loan. I find that when you expect the money to be paid back, it will only cause more harm and bitterness in the long run. If you do decide to give someone money, do it without expectations. There should not be any financial or repayment “terms” attached to your donation.
If you are a first generation wealth builder who is constantly asked by friends or family for money, I have a few things you need to think about. Sit down on your own or with your spouse or partner to discuss the following:
- Who are we willing to support financially in your family or community?
- Who wouldn’t you want to activate if they asked for money or a loan?
- How much budget are you willing to give to friends or family or to support your community each year?
- What situations justify intervening to offer financial assistance? What situations should you avoid?
Go up and take a step back
Knowing the answers to these questions ahead of time can help you conscientiously say “yes” or “no” if and when someone asks you for money.
Helping your family in times of need can be an incredibly rewarding way to use your wealth. However, if you feel like you are being abused or want to put an end to the usual demands for money, you can take a step back.
Growing your wealth doesn’t mean you have to help everyone around you. You can make financial decisions about how you want to use your hard-earned money to support yourself, family, friends, and yourself.
Putting your own financial needs first is not a bad thing. Always remember that it is essential to put on your financial oxygen mask before you can help others.
– By Rianka R. Dorsainvil, Founder and President of Your Greatest Contribution