This is a sensible topic for many FIRE (Financial Independence Retire Early) walkers – since the people who borrowed the money are generally wasteful and in many instances are considered less sophisticated the in the utilization of their financial resources.
As for a personal example from my own experience – in 2009 when the stocks market was falling apart, a sister-in-law of mine was in trouble financially. Her husband was in sale and marketing at the moment.
She asked for to borrow $6000 to cover two months of mortgages!
Over the years, I came to know both of them to be generous and at the same time wasteful in extravagant lifestyle – driving designer cars and living in penthouse high rises.
Without going into the details of the private conversation between my sister-in-law and me, I decided to commit $12,000 toward her family housing with one condition – her family must move to a reasonable apartment and condo where I would wire the money directly to the leasing office for 12 months ($1000 per month).
My decision and condition for the loan were based on two presumptions –
- They will default on their mortgage
- The economic down turn will take at minimal 1 year to recover
They refused to take the loan from me along with the condition and lost their home in 6 months. The recession began the recovery a year after the financial catastrophe.
If I had given her the $6000, the money would have fallen into the financial abyss.
The relationship between our families came to an abrupt end for 10 years until she called me in the new-year day of 2019 with the desire for reconciliation.
If you are committed to Financial Independence journey, and unless you are a loner, inevitably you will encounter emotional situations that will pit your money and your relationship with others.
Let’s begin the discussion of the financial obligation with respect to relationship by using the anatomy of relationship illustration!
Self – it should be apparent to many of you that as you get older, it is a paramount requirement to have a full financial responsibility to your “Self”.
Many millennials in their late 20’s and early 30’s, due to the way they were raised or just poor early financial choices, were unable to meet their basic financial needs – foods, housing and transportation.
If you are unable to meet the basic financial needs for your “Self”, the answer to the question “Should you let family or friends borrow money?” should be obvious – you cannot help others if you are drowning.
Family – once you have found the mean to support yourself, the next level of financial responsibility to strive for is the establishment of a family – a biological inspiration that should have been hardwired in most of you – the natural cycle of life.
This is a struggle many animals including the human species must face – compete for resources to ensure the propagation of your genes is the basic requirement for all organic life forms.
If you are unable to meet the basic financial needs for your “Family”, the answer to the question “Should you let family or friends borrow money?” should be obvious – you cannot help others if your family is drowning.
Parents – financial obligation toward aging parents is a philosophical discussion in the wealthy and technological advance countries – it is a requirement in the poor and developing countries.
We will not discuss the morality in the obligation of taking care of one’s own aging parents. But, we can deduce the proper answer with rationality.
As we have logically built up the financial responsibility argument – first and foremost, you must be able to meet basic financial needs for your “Self” then strive for the family financial responsibility.
Let’s say with training and discipline, you executed your natural ability and found financial success to meet your “Self” and the family needs above and beyond – and have more money accumulated in savings and investments.
Will you let a friend who is in need to borrow? Or will you use the access money to meet the basic needs of your aging parents?
If the relationship between you and your parents has been nurtured and maintained along the way – it should be clear that helping aging parents with your earned financial resource is the answer.
Once you have a clear understanding of the 3 levels of financial responsibility the “Self”, the “Family” and the “Parents” – the rest is simple to incorporate in your FIRE plan.
For many Christians who practiced put 10% of their income toward their church, this financial strategy is easily deployed – God will understand if you are helping a friend who is in need.
In the beginning of the article, I gave a personal example of a situation with my sister-in-law who was in need of my financial help. The $12,000 I proposed as a loan was from this charity fund – I did not have any expectation the loan will be repaid.
From my own personal experiences over the year, statistically less than 10% of friends who borrowed money from me repaid the loan in a timely manner – most them are stuck in debts for years to come.
So now let’s answer the question – should you let family or friends borrow money?
Regardless if you are or not doing FIRE – you are biologically wired as social creatures. And to maintain the social structure, you don’t just take, but must give!
YES – you always let’s family and friends borrow money when they are in need – start with the 10% charity fund and don’t expect the money will be repaid.
Once the 10% charity fund is emptied – evaluate the situation case by case with family, aging parents for example, ranked at a higher priority.
Let’s play the game of life!
