What to Do If Someone Asks You for Money

Should money and friendship mix?Two ex-best friends on the "Winning the Lottery Ruined My Life" show are sharing their story about how misunderstandings about money and loans contributed to the deterioration of their friendship. Unfortunately, money is a topic that can ruin relationships, cause tension in families, or worse.

There is, however, a positive way to react when someone asks for money. By following these guidelines as outlined by Personal Financial Expert Farnoosh Torabi and other guests on "Anderson," you can help to ensure that establishing a loan between yourself and a loved one will not be the cause of a failed relationship.

Learn how prepare yourself if someone asks to borrow money.

1. Get Full Disclosure

Get full disclosure about how the money you are lending will be used. Farnoosh says she has seen many situations in which resentment occurs because the lender believes the receiver is spending money one way, but the receiver actually spends the money a different way. By forcing the person borrowing money to disclose how they'll be spending it, you keep that person accountable. You also protect yourself from becoming a personal ATM for your loved ones. If you don't establish an understanding, they'll assume your money is their money.

2. Create a Contract

No matter how close your relationship is with the borrower, take your emotions out of the situation and create an actual written contract establishing the guidelines of the loan. In the contract, include the amount of money being exchanged, how and when you want the money paid back, and discuss interest rates (if applicable). In case you are not repaid, you can use this contract as a way to claim a tax deduction. Farnoosh suggests using templates from a site such as Nolo.com to find a template for a suitable contract.

3. Assume It's a Gift

Farnoosh says that in most situations, when you lend money, it simply will not be paid back. Even if it is paid back, it is often not paid back in full. Manage your expectations from the beginning, and assume that the money you loan is a gift. By managing these expectations early, you can prevent ruining a friendship.

4. Get a Good Financial Advisor

No matter how good a handle you think you have on the situation, confer with a financial advisor. Get a recommendation from someone you trust for a good financial advisor or attorney, and be sure that the advisor is outside of your family and friends.

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