How to say 'no' when family and friends ask to borrow money, from a financial therapist

Lending money to a friend or family member can put a strain on the relationship if you're not careful.

Nearly a quarter of people who lent money or covered a group expense with the expectation of being paid back say doing so negatively impacted their relationship with the other party, Bankrate's 2024 financial taboos survey found.

While a common rule of thumb is to simply not expect to receive the money back after loaning it out, there's another way to navigate this dilemma without going bankrupt yourself: Set boundaries and clearly communicate them.

"Decide if you can afford to give them the money and if you can't, you may not really be in a position to help," Aja Evans, a board-certified therapist who specializes in financial therapy, tells CNBC Make It. "You cannot potentially sink your own ship to bail out someone else."

That's not to say having that conversation is easy, Evans says. Often, close friends or family members may be aware of the things you're spending money on, like clothes or vacations, and make judgements about what you can or can't afford.

But it's important to remind yourself that no one knows your money better than you, Evans says. "Just because you have it in your account doesn't mean you can give it," she says. "Especially if you know other bills are coming."

Here's an example of a healthy boundary you can set when asked to loan money and how to navigate the potential guilt that may come if you say no.

Give what you can afford

Directly saying no when a friend or family member asks for money can be hard, especially if you've loaned them money in the past. That's why it's OK to start small, Evans says.

One way to do that is by lending what you can afford, even if it's less than they've requested, she says. Say a friend asks to borrow $100, but you know giving them the full amount would significantly impact your budget. Try offering an amount that is more feasible for you, such as $20 or $30.

And while you don't necessarily owe them an explanation for why you can't give them the full amount they've requested, it can be helpful to honestly communicate the other financial obligations you're managing, Evans says.

"That's a healthy boundary because, while you may not be able to give all of what they want, you're giving what you can without sinking your own ship" she says.

It's OK to feel guilty

It's common to feel guilty after refusing to lend money to a friend or family member, even if you're proud of yourself for setting the boundary, Evans says. To deal with the guilt, it can be helpful to write down your financial boundaries and the reasons you're setting them.

Say you want to boost your emergency savings by allocating any extra income to a high-yield savings account. When you write that goal down, you can readily refer back to it when someone attempts to make you feel guilty for not lending them money, Evans says.

"Remind yourself what you're trying to achieve and why," she says. "List your boundaries so when they get pushed — and they will get pushed — you can go back and look at your why."

You're not always going to get it right, and may give in to a request for money, especially if it's a close family member, like a parent or sibling. When that happens, it can be helpful to create a list of coping strategies that can help you feel better, Evans says.

"The list is endless. Take a bike ride, cook something, water your plants," she says. "The list goes on and on, but its good to have something you know will help lower your stress after a potential confrontation."

Ultimately, while setting and maintaining your financial boundaries may be difficult in the short term, it can pay off in the long term and help you meet your financial goals.

"It's very hard, but it's very important," Evans says. "Yes, you feel bad now, but you're going to feel great when you're able to pay for the things you need."

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