You find yourself in a really uncomfortable situation: a loved one has just asked you if they can borrow money from you.

Besides feeling awkward, this request often brings up big feelings and deep fears.

In this video, I help you sort through the feelings so that you can get down to the question: should you loan a loved one money?

The four rules of financially fit lending to friends and family will help you navigate this sticky situation with ease.

Best of luck!

When it comes to having a lot of money, one of the common fears that people have is that they’ll get hit up from friends and family asking to borrow money because they don’t know how to handle it. Should they say yes or no?

If they should say no, how do they actually do that –it feels hard to say no and brings up a lot of fears around upsetting the other person or losing the relationship. There are plenty of people who have been raised to believe that if you have it, you should share it.

So what’s the financially fit way of handling a request for a loan? The way I see it, there are four rules you must abide by.

First, let’s talk about the mindset. We want to approach this decision from a clear and centered space so if bad feelings come up for you when you think of this scenario, let’s deal with that first. The first financially fit rule of lending money to friends and family is that you must never agree to it out of a negative feeling or a fear-based belief.

Do not say yes out of guilt, a sense of obligation, or fear. If those are the thoughts and feelings that come up for you, get those handled by questioning the thought or belief that makes you feel guilty, obligated, or afraid if you were to say no. There’s undoubtedly a limiting thought or belief that’s driving these feelings, and you must do what you can to identify and dismantle it, even if that means recruiting a financial coach or therapist to help you get to the bottom of this feeling.

The second rule of financially fit lending is that you must be comfortable in your ability to say no, even if you end up agreeing to the loan. Saying no, believe it or not, is actually a skill. Well, maybe some people are naturally talented at saying no, but if it doesn’t come naturally to you, that’s okay, it is  definitely a skill that can be developed. I think you should even practice saying no if the thought of it makes you really uncomfortable. It doesn’t make you a bad, mean, nasty, or selfish person to say no. It won’t make you unlikable or unlovable.

A financially fit person is comfortable saying no. No long winded explanation. No feeling bad about it. Just no. It shouldn’t be too hard if you’ve handled the first rule.

The third rule of financially fit lending to friends and family is that you encourage them to get financially fit. It’s a tough sell at the moment but a financially fit person is always a stand for their community to get financially fit. If lending someone money will inhibit their willingness or desire to learn how to handle money, then the answer to the request for money should be a solid no.

If you’re going to consider lending any money, you need to feel confident that the friend or family member understands what financial fitness is and that they are taking steps to achieve it. If you doubt the sincerity of their intentions, decline the request to borrow money.

And now the fourth and final rule of financially fit lending to friends and family: A financially fit person does not lend out money. I’ll say that again in case that just threw you. A financially fit person does not lend out money. Listen, you’re not a bank, so I don’t recommend acting like one.

This one sounds harsh, but let me explain. One of the major shifts that you go through from being financially unfit to financially fit is being proactive, not reactive. Financial decisions are thought about in advance and planned rather than something you react to in the moment. So unless you have planned for money that you’re going to loan out in your budget, loans are a reactive action and therefore a no-go.

However, if your budget has a gift category, then you can consider saying yes to the request for a loan IF your gift budget allows for it. Your gift budget needs to have enough money in it, and you have to be willing to spend less on other gifts you had planned to buy with that money.

Here’s the corollary to rule #4 about financially fit people not lending out money to friends or family. A financially fit person can give financial gifts to people who ask for a loan. Whether or not you tell the friend or family member that you’re considering this a gift, you must accept that there is a good chance you will never see this money again, and be okay with that.

Another thing you must unfortunately also be okay with, if you say yes, there’s a high probability of the relationship getting weird, distant, or falling apart altogether. I know that seems strange, and the fear of ruining a relationship is usually one of the reasons people feel they have to agree to the loan, but yes, even if you hand over the money, statistically speaking, the relationship will get strained. Just be prepared.

There’s another practice I’ve seen among people who get hit up for loans, and that is that they will give them the money, often times as a gift, and the person who asked for the money has to swear on their life that they will never ask for money again and sometimes both parties agree to never speak about this incident again.

I’d love to hear from you, how you handled a request for a loan, and how did it turn out? Would you recommend giving loans to friends or family? I’d love for us to learn from each other’s experiences. Share in the comments and I’ll catch you in the next video.