Your friend asks you for a loan to get by.

Your parents need help covering this month’s rent.

Your partner needs help while looking for a new job.

These are some of the most complicated, sometimes difficult, and sometimes frustrating situations you can get in with a loved one or friend.

Many people have either been in or heard of others being in this kind of situation.

I have heard of people losing friends over a loan gone wrong, and I’ve heard people treat it as a completely normal thing to do.

Clarification

This is an incredibly personal situation that can differ wildly based on the people involved.

This is not meant as direct advice for anyone, but instead me speaking from my perspective.

I hope you find this useful and can apply it to your own mindset.

When It Goes Wrong

There are an infinite number of reasons why loaning/giving money to a loved one can go wrong.

However, there is one reason that rises to the top: lack of definition.

Without a clear understanding of the loan/gift amount, interest payments, payback timeline, etc., the situation is bound to go wrong.

One or both people are bound to be frustrated with the situation when they enter into this situation without a solid agreement.

How to Do It Right

Again, there is no hard-and-fast rule for this.

However, there are a couple of options.

Option 1 (preferred) - Never expect the money back

Ideally, you want to be able to help the person financially and never expect to be compensated for it.

Of course, this needs to be very clear from the jump.

The “loaner” should set a hard limit for how much financial assistance they will give, and that they have no expectation of being compensated for it in the future.

If you’re fortunate enough to be able to financially afford this, I see this as the best way to go.

There can’t be any miscommunication over payback later on because there will be no payback.

Option 2 - Get the agreement in writing

It may sound silly to talk about written agreements with family or loved ones but hear me out.

If nothing is clearly written down, exact timelines, amounts, etc., can be lost in verbal conversation.

A written agreement always gives both people something concrete to reference.

As long as both parties are comfortable with the agreement when it’s written, there should be no need for conflict to arise later on.

Remember, never overextend yourself.

Even the clearest written agreement will be pointless if the agreement leaves both people in an uncomfortable financial situation.

Make sure the agreement adequately helps the other person while not damaging your future.

How I Handle It

To be upfront, I am in a financial situation where I am comfortable helping someone and never expecting compensation.

To me, using my money to better someone else’s life or future opportunities is far more worth it than saving some more for myself.

I would rather have my entire friend group financially comfortable than some people doing really well and some doing not so well.

Again, this is all just my point of view on these situations.

See you next week,

Evan

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