It is a tough decision for some people if they will financially help friends who are in need. There are others who would do so willingly but for some, it is a tough decision to make. This is because there are people who believe that money will ruin any kind of relationship if it is not managed well. This is the reason why lending money is such a hot topic among friends and family.
Some people would be quick to say that they value the relationship more than money so they will readily lend to friends and even other people they know. Others take a different approach and they tend to be wary in lending money. This is because they know that it can negatively affect the relationship and choose not to lend money.
It is a tough decision if you will financially help friends or not. On one hand, your friends could resent that you choose to not lend them money despite knowing each other for a long time. On the other, lending money can put your own finances at risk as well. It is a delicate balance and you need to make an informative decision. Here are a few things that can help you make that decision.
How to know if your friends are having money problems
The challenge sometimes is that people around you are not open about their finances. This is because they want to keep it to themselves especially if they have a problem. However, a change in behavior usually means that your friends are going through a tough time. The change that you see can be an indication that they are having problems they cannot manage on their own.
If your friends look stressed all the time or irritable, that is also a sign that they are going through a challenging time with their finances. These are just some of the things that will tell you that the people you care about is having a financial issue. It is now up to you if you want to reach out and help. If you do, there are ways to help without putting your finances in peril.
Tips to financially help friends
Here are a few ways to help your friend as they go through their financial problems.
You can talk to them and share pieces of financial advice
The first thing that comes to your mind when you think of financially helping friends is pulling out your wallets and giving them cash. There could be times where you are also in a tight spot but you want to help. When your friends have money problems or any other types of problems, sometimes they just need someone to talk to.
Try to be there for them and have a listening ear. There are times that they already know what they need to do and you just have to be there for them to listen and guide them with their decisions. This is helpful especially if you have been friends for a long time. You know them enough to guide them into making the right decisions for them. Giving them pieces of financial advice can be a big help.
Make sure you have the repayment details down
When you choose to financially help friends, make sure that you have the repayment details down. Agree on this schedule together so you do not have to constantly keep asking about the payment from your friend. When you both agree on a schedule, you already know when the payment is coming in and your friend knows when to pay back.
Of course, this is the ideal setup but there could be bumps in the road. If that happens and your friend is unable to pay back, they know what the schedule is and could reach out to you. They can tell you what happened and give you another date where they can make the payment. This makes a repayment agreement important because it lays out the payment responsibility of your friend.
Lend only money you can afford to lose
If you want to financially help friends, remember that you might not see the money you lend them again. Taking this approach and mindset makes you more cautious about the money you lend to your friends. It is not wrong to want to help but you should not put your own finances in peril as well. Take a look at your discretionary fund and use that money if you have to lend money.
If you opt to lend money you can afford to lose, you will not worry too much if you do not get paid back. You get to salvage the relationship if you
Things to stay away from when helping your friends with money
Do not cosign a loan
There might be times that in an effort to try and financially help friends, you are given the option of simply cosigning a loan. You do not have any cash-out and they are just using your credit score to get a loan. It is also a bonus for them if you have been very conscious about your score making sure you remain at a certain bracket.
However, you need to keep in mind that when you cosign a loan, you are also taking up responsibility for the loan. Your finds might promise you that they will always pay on time and never miss a payment. The problem starts when they get into trouble and start missing payments. You might think that it is their burden to carry but you are just as responsible as they are.
If you cosign a loan, you are using your own credit score to apply for the loan. As such, it also becomes your responsibility as well to ensure the loan is paid. If payments are made late or not made at all, it will also reflect on your credit report. You are in the hook for the payment and could be getting collection calls as well.
Do not dip into your retirement fund
If you want to financially help friends, be mindful of the money you lend them. Do not put your future finances at risk and negate decades of hard work by dipping into your retirement account to lend money. This puts your future at risk and you could also lose your fund’s ability to grow if you take it out prematurely. This is dangerous because Forbes shares that 48% of households with near retirees does not have retirement savings.
If it is your 401k, you might even be slapped with a penalty if you take it out early. Stock investments taken out prematurely could miss out the opportunity to grow. If that happens, you might miss your mark and move your retirement date further. You will be putting your future at risk if you dip into funds meant to help you live during retirement.
Avoid withdrawing funds from your investments
It is not a good idea to take out investments before you have realized gains and lend it to your friends. Again, you are putting your future in danger because you are taking out money you need for future use. Rather than earning money you need, you are lending that money away to your friends. This is something you need to be aware of.
Your investments need time to grow and there are times when you might see the dip. That is normal especially when you are dealing with stocks where markets go up and down. If you take it out while the market is down, you could be losing money in the process. It would be challenging to get back that amount in time for when you need it the most.
It is a tough decision if you will financially help friends out or not because you can essentially put either your finances at risk or your relationship in peril. You need to weigh a lot of factors carefully before you can make that decision.