Today we are getting into a grey zone when it comes to money, mixing family and finances. I call it a grey zone because even though you might have a very strong opinion on the subject from a distance (and that’s OK because most people usually do) you can’t really decide how to handle it until your family asks for money.
If your brother called you tomorrow and asked to borrow $100 would you lend it to him? What if it was $1,000? Now what if it was your grandmother? I’m not psychic, but I can almost guarantee that your answer for each of those questions was different. See…grey zone.
When your family asks for money it’s hard to answer yes or no up front. You will probably have an initial reaction which will be “hell no” or “yes of course”, but before you commit to lending money think about what you’re getting in to.
The best way to do that is to weigh the pros and cons. If your scale tips to the yes side of the equation then keep the following things in mind.
Here are four things you need to do when your family asks for money:
Get the terms in writing
A written agreement is the best thing you can do when your family asks for money. It clearly states the terms of the loan and it sets expectations from the get go. I suggest a regular payment schedule as well as a final due date. The due date should be an actual calendar date, not “when I get my tax refund.”
What happens if your family member doesn’t get a tax refund? You won’t get your money back, that’s what. The more specific you can be about the repayment dates and dollar amounts as well as recourse if the loan is not repaid in full can all be very helpful.
This may seem silly at first, but just think about it for a minute. If you have something they want and are holding it until the loan is repaid in full the odds are they will repay the loan as quickly as possible because they want their personal item back. This strategy only works if you take something they absolutely love and can’t live without.
The other side of the coin is if your family member has an item of value they can pawn it or sell it for money instead of borrowing from you. But once again we’re talking about family and it’s hard to say no to family, right?
Expect not to be repaid
It’s sad to say, but family members take advantage of family members. We are more likely to repay a stranger at a bank than we are our own flesh and blood. Why is that? The fiscal answer is because the bank can lower our credit score and ruin our financial well being, our grandmother cannot.
Don’t be afraid to take action
If you really want your money back, and are prepared to possibly ruin your family relationship, you can take action against an unpaid loan. You can file a claim and go see Judge Marilyn Milian in The People’s Court. However taking legal action against a family member, even though it may be necessary, can definitely put a damper on the next Thanksgiving and Christmas dinners.
That’s why it may be best to not expect to be repaid, or just say no and don’t lend out cash when your family asks for money.