We all know that times are tough, but it really strikes home when one of our loved ones asks us for financial help—or when we need to ask. It’s incredibly difficult to navigate the proper money etiquette if you’re looking to borrow or lend. As Shakespeare said, “Neither a borrower nor a lender be; For loan oft loses both itself and friend.” If your sister lost her job; is it your responsibility to step in? If your best friend has trouble paying rent, is it smart to help her out?
And then, there’s you. You’re a financially-responsible adult, but sometimes you’re simply in a bind. What’s the best way to ask for money, and what do you do when there are strings attached? The most important thing is to borrow and lend in a way that doesn’t ruin your relationships. Here’s how.
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Rules For Lending
Go in With Your Eyes Open
A recent CNN Money survey showed that 43 percent of people who made a personal loan weren’t paid back in full; 27 percent had not gotten any of the money back. It’s very possible that you won’t see this money again, either. You need to be prepared for that.
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Know Your Motivation
Are you are hoping for some sort of emotional recompense in addition to being paid back? Do you want your recipient to feel grateful—or even guilty? Does a part of you like having a financial edge so you can feel better about yourself in comparison? Try to think about any subconscious agendas in advance so things don’t get sticky down the road.
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Be Willing to Say No
What if you choose not to lend money, even if you can afford to? Family psychologist Dr. Brad Sachs suggests that you must be honest and clear. Try something like, “I’m afraid that loaning this money would eventually create more problems than it would solve, and I’m concerned that the longer-term implications would outweigh the short-term relief. I’d be happy to talk with you more about the reasoning behind my decision, if that would help.” You can choose to support your loved ones in non-financial ways, as well, by doing things like passing on a resume to another friend who is hiring, reading a business plan, reviewing grad school papers, or just being a sympathetic ear.
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Rules For Borrowing
Be Clear About Your Needs
To show people that you have your act together and plan to use the money they give you responsibly, outline your goals, financial plan, and budget, says Lauren Gray, a licensed marriage and family therapist in Washington state. It’ll also provide a good jumping off point for a frank conversation.
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Understand Your Own Money Issues
Be clear with yourself, too, says Dr. Sachs. Does asking for a loan make you feel guilty or inadequate? Will this loan promote your capacity to become self-reliant or induce further dependence? We’ve all got money baggage; we just need to sort it out before we borrow.
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Talk Terms of the Deal
Is this a loan or a gift? If it’s a loan, is there interest? (Note that if more than $13,000 is passing hands, you need to be careful not to run afoul of the IRS.) What’s the timeframe for repayment? Are both sides perfectly clear about how the money will be spent? According to Gray, if expectations are spelled out explicitly, the chances for success increase dramatically. Consider drawing up a formal agreement to outline the terms of the loan. The goal here isn’t to make either party feel bad, but to set clear expectations and protect yourselves if something goes amiss.
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Are There Strings Attached?
No matter how much your lenders love and respect you, some may feel that they have a right to tell you how to spend your money (or even your life) after they give you a loan. “Typically, a loan strains a personal relationship,” says Kevin Zulch, an accountant with a practice in Red Hook, NY. In fact, he advises his own clients to try other avenues before turning to friends and family.
Prepare to prove Shakespeare wrong: It’s possible for a loan to keep both itself and friend.