When a loved one is struggling financially and asks you for help, there’s a good chance you’ll be there for them. However, according to financial expert Suze Orman, being able to lend money doesn’t always mean you should.
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Here are three things Orman insists you should know before becoming too generous with your money.
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Lending Money Isn’t Always Generous
“Generosity must flow in both directions,” Orman said. In other words, helping a loved one shouldn’t come at the cost of your financial stability. If lending money means you won’t be able to pay off your credit card balance this month or shore up your emergency savings, then that’s not generous.
Many people think saying yes will make them a good friend or family member. Orman suggested taking a pause and asking yourself if it passes your generosity test. If lending leaves you financially insecure, it doesn’t pass the test.
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Ask Yourself if Helping Will Solve a Real Problem
Before you lend money, Orman recommended evaluating whether your money will help that person long-term. If it’s something that will become a habit, helping out won’t solve the root cause. “Giving money to someone who can’t control their spending is not helping them,” she said.
In some cases, financial help might delay important life lessons. For example, giving money to your child so that they can afford a better lifestyle might seem kind and generous, but it won’t help them to learn to live within their means.
Consider Offering a Loan Instead of a Gift
If you can afford to lend money, consider it a loan; not a gift. While this may sound less compassionate, it empowers the borrower. “By making it a loan, you offer that person the structure to stand in their truth,” Orman noted. The act of repaying, even if it takes years, will give the borrower some sense of responsibility.
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This article originally appeared on GOBankingRates.com: Suze Orman: Should You Lend Money If You Can Afford It?
