Loaning money to a friend or family member can put a strain on your relationship if you’re not careful.
Nearly a quarter of people who borrowed money or paid group fees with the expectation of being repaid said doing so had a negative impact on their relationship with the other party, according to Bankrate’s 2024 report Financial Taboo Survey established.
Although a common rules of thumb Just don’t expect to get your money back after lending it out. There’s another way to deal with this dilemma without bankrupting yourself: Set boundaries and communicate them clearly.
“Determine if you can afford to give them money, because if you can’t, you may not be able to really help,” Aja Evans, a board-certified therapist who specializes in financial therapy, tells CNBC Make It. “You can’t sink your own ship to save someone else.”
That’s not to say it’s easy to have this conversation, Evans said. Often, close friends or family may be aware of the things you spend money on, such as clothes or vacations, and judge what you can or cannot afford.
But Evans says it’s important to remind yourself that no one knows your money better than you do. “Just because you have it in your account doesn’t mean you can give it away,” she said. “Especially if you know other bills are coming.”
Here’s an example of how you can set healthy boundaries when you’re asked to borrow money, and how to overcome the potential guilt that may arise if you turn down a loan.
Give what you can afford
When a friend or family member asks you for money, it can be difficult to say no outright, especially if you’ve lent them money in the past. That’s why it’s OK to start small, Evans says.
One way to accomplish this, she says, is to lend money you can afford, even if the amount is less than what they ask for. Let’s say a friend asks to borrow $100, but you know that lending them the full amount will significantly impact your budget. Try offering an amount that’s more feasible for you, such as $20 or $30.
While you don’t necessarily need to explain to them why you can’t give them the full amount they’re asking for, it can be helpful to honestly communicate other financial obligations you’re managing, Evans says.
“That’s a healthy boundary because while you may not be able to offer everything they want, you can offer what you can without sinking your own ship,” she says.
It’s okay to feel guilty
Evans says it’s common to feel guilty after refusing to lend money to a friend or family member, even if you’re proud of the boundary you set. To eliminate guilt, it can be helpful to write down your financial boundaries and why you set them.
Let’s say you want to grow your emergency savings by allocating any extra income into a high-yield savings account. Evans says that when you write down this goal, you can easily refer back to it when someone tries to make you feel guilty for not lending them money.
“Remind yourself what you want to achieve and why,” she says. “Make a list of your boundaries so that when they are pushed—and they will be—you can go back and look at your why.”
You won’t always get it right, and may give in to demands for money, especially if it’s a close family member such as a parent or sibling. When this happens, it can be helpful to create a list of coping strategies that can help you feel better, Evans says.
“The list is endless. Riding bikes, cooking, watering plants,” she said. “The list goes on, but it’s good to have something you know can help you reduce stress after a potential conflict.”
Ultimately, while setting and maintaining financial boundaries may be difficult in the short term, in the long run it can pay off and help you achieve your financial goals.
“It’s very difficult, but very important,” Evans said. “Yes, you feel bad now, but you’ll feel great when you’re able to pay for what you need.”
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