Recently, I’ve had multiple questions on the topic of loaning money to family money. Each issue was different but all on the topic of helping out family financially. After a few, I realized that my responses had the same two core steps to make lending to loved ones go smoother. In this article, I’m sharing those two steps to tackle the subject.
The number one thing people do wrong when loaning family money is not putting it in writing. People think because it’s family they don’t have to put the terms of the loan in writing, but they’re wrong. It’s even more important to do it because it’s family.
Step 1. Before loaning family money, write out an agreement. Include how much, for how long, payment due dates, who are the parties, what steps will be taken if the payments are late. Having a written agreement lets everyone know the expectations up front, but it also makes them take it seriously.
If you loaned a person money and didn’t make a clear due date, for example, then the other person figures they can get the money to you when they feel like it. Imagine the person you loaned the money to going to buy a new TV. Then you’re wondering why they have money for a TV but not to pay you back. It creates jealousy and resentment. Lending money to loved ones becomes toxic because of a lack of communication. Not communicating leaves room for a lot of assumptions.
Step 2. Be clear by communicating about the loaned money. Don’t be passive aggressive, say or ask what’s on your mind. They’re not mind readers if something is bothering you talk it out. If there’s some confusion, clear it up. Don’t wait and let things fester. It will make family get-togethers awkward and tense.
It can be stressful to get your financial life intertwined with family members. By writing out clear guidelines and expectations, you will take a lot of the stress out of the situation. Maintain a good working relationship by communicating concerns honestly and directly to smooth out any issues. Combining these two steps will be a good foundation to guide you through loaning money to family.