You got the call. Your mom called to tell you how your youngest sister just can’t make rent. Your mom has been trying to help, but can’t help anymore and your sister is going to be evicted etc, etc, etc. Can you give/lend your sister a few months of rent until she’s back on her feet? Ugh… You love your sister and you know she’s trying (or maybe she isn’t), but it’s a lot of money and you’re not rich.

Before you get “guilt-ed” into it, remember the math will set you free. Ask how much. Exactly. How. Much. Don’t take “a few months rent” or “she just needs to pay for daycare” or “once she gets her tooth fixed she’ll be fine”.  No. Ask for a dollar amount and get it before you say anything.  Also, don’t take $500 or $600. Get an exact amount. Not only does it help you know what kind of hardship it might be for you, but it also helps the borrower focus on their own money issues. It creates a ‘moral obligation’ because it’s not just “I need to fix my tooth,” it’s a number.  Numbers focus people! She will know she owes you $435 for her tooth.

I always talk about “ready-to-use” savings which means “liquid” savings that are kept in cash or a bank account that you can just withdraw from for an emergency. It’s the cash you have around for a rainy day. Not retirement, college funds, house equity, investments, bonds, or investment items (art, antiques, etc). Always know what your “ready-to-use” savings are so you know what you have for a rainy day or a relative in need.

To be conservative, you should only lend up to 10% of your ready-to-use savings. I say 10% because you have to assume you will never see this money again, especially, if the family member is not herself waiting for a payment (say, insurance or child support).  If the amount you need to lend is more than 10% of your ready-to-use savings, say you’re not comfortable lending more than 10% because it could cause a hardship to your family. It is a hardship because everyone should have at least 6 months of expenses in ready-to-use savings and only 25% of Americans do. If you’re not in the 25% then even a loan of 10% of your ready-to-use savings is a hardship. Try to get more relatives involved if it’s a bigger number.

Example:

• Ready-to-use savings = $5000 for your whole family
• 10% of ready-to-use savings = $500
• You should only be willing to “lend/give” up to $500 to a relative in need

Obviously, there are emergency and extenuating circumstances, which might require greater hardship for your family to help family members such as natural disasters, sudden illness, and others. But if it is a relative who’s put the pinch on you or other family members before, or tends to go in and out of financial security, the 10% rule is a good one.