How to Financially Support Loved Ones Without Sacrificing Your Well-being

It’s not uncommon for women to take on the role as the default caretaker in domestic and related family matters, but what happens when taking on these responsibilities takes a toll on their own financial well-being? 

The REAL SIMPLE and Investopedia 2024 Her Money Mindset Survey found that most women (67%) have supported a loved one financially at some point in their life, and the percentage is even higher for younger women. However, at the same time, many women are balancing debt, and struggling to pay at least one monthly bill.

In this piece, we’ll explore how to financially support loved ones without compromising personal well-being. We’ll cover strategies that include assessing a financial situation, effective communication with loved ones, alternative forms of support, setting clear boundaries, seeking professional advice, and prioritizing personal well-being.

Women Lending Money

The 2024 Her Money Mindset survey revealed women tend to be generous despite their own potentially precarious financial situations. When looking at just the women who said they have financially helped a loved one, 1 in 5 also said they are currently struggling to pay at least one monthly expense.

Women helping others to their own detriment could mean less financial viability in the long run.

A report from the U.S. Census Bureau reveals that women are more likely than men to have no retirement savings. Women that outlive their spouses and earn lower wages over their lifetime may be at more risk, as the report also cites that, “About 50% of women ages 55 to 66 have no personal retirement savings, compared to 47% of men.”

From just a few data points it's evident that women, who often shoulder the responsibilities for their loved ones, need to create a plan to support both themselves and their family members effectively.

The Downfalls of Lending Money To Family

Despite any good intentions, there are ways that lending money to family and friends can go awry. Perhaps you or someone you know have been in this situation with less than ideal outcomes. Before you use your financial resources to help those close to you, first consider the following:

It can permanently change your relationship

Lending money to a friend or family member can put a strain on your relationship—especially if the borrower doesn’t adhere to the repayment agreement. This could cause feelings of resentment, frustration and in some cases familial alienation. 

When considering lending money to someone, ask yourself are you willing to have a strained, permanently damaged, or even nonexistent relationship with them? If the answer is no, it may be best not to move forward with the transaction.

It can negatively impact your own finances

If you are already in a tenuous financial situation, lending money to someone could aggravate or worsen your financial stability. There’s an opportunity cost related to lending money. Once lent out, this money is no longer working for you, whether in the stock market or accruing interest in a savings account.

Plus, if you’ve lent money that you’d otherwise use in a financial emergency, you may have to borrow money for the emergency at a higher interest rate to cover the shortfall. Both situations can put you at a financial disadvantage.

Tips For Lending Money To Family

In some cases, you may not be able to avoid lending money (or perhaps you’ve already done it.) Here are some tips in case it’s absolutely necessary.

1. Set boundaries: Create a personal budget with a line item for helping people. When it’s exhausted, explain to your loved ones that you’ve reached the limit for that expense category. 
2. Document everything: Capture the terms of your transaction, no matter how small, in writing. Even if you’ve already lent money, don’t be afraid to document a verbal agreement retroactively. You can download loan agreement templates online, which can be notarized by both parties. 
3. If you can’t lose it, don’t lend it: Though this philosophy may not always fix a money situation gone south, it can lessen the impact on the injured party, i.e. the one who may not be repaid. This approach may also salvage relationships when personal lending goes wrong.

How to Build a Financial Plan for You and Loves Ones

If you want to ensure that giving financial help to others doesn’t set you back, here’s a step-by-step guide for how to go about it.

Assess Your Financial Situation

First, evaluate your finances. Take stock of important key financial metrics like your income, expenses, and savings. From there, make note of your financial goals, current financial situation, and what’s needed to meet those markers. Then, create an action plan based on that information.

For instance, instead of setting aside $200 per month to help others, you may want to set aside $100 until you reach your personal financial goals. Whether or not you can contribute to your loved ones' needs or not, communication is key, which we’ll cover next.

Communicate With Loved Ones

Diane Bourdo is a certified financial planner, CFP, and President of The Humphreys Group, an all-women run wealth management firm based in San Francisco, California. She gives guidance on how to broach sensitive financial topics with family.

“The first tip is to be proactive," Bourdo said. "By being proactive and planning a conversation when you have time to talk things through calmly, you are a significant step ahead.” 

She describes how you can schedule these conversations to make them more proactive than reactive and emotionally charged. “Don’t blindside the other person … Pick a time when you both will be more relaxed and comfortable.” 

If you’re hesitant about starting these conversations, Bourdo suggests that you “start small, prepare, and practice."

Even before you have these conversations, it’s important to have your personal boundaries in place. Bourdo describes this as a “personal policy" which you could also think of as guidelines or a decision framework.

Stephanie Lyons is a financial coach and founder of Masterpiece Financial Coaching. She has created personal policies like setting aside a limited amount of money to help family members and not co-signing for loans.

“I’ve learned through trial and error that in order to maintain healthy relationships and avoid becoming a “crutch” or feeling taken advantage of, it’s important to establish boundaries and to communicate expectations about money clearly,” Lyons said.

The reality is that these conversations will likely be uncomfortable. However, if you can plan for these discussions proactively and purposefully, it can be easier than if you have to start these conversations during a family emergency or under duress.  

Explore Alternative Forms of Support

Once you start communicating with your loved ones about financial support matters, it’s important to inform them about the options outside of or in addition to financial support. 

Rahkim Sabree, a Financial Therapist and Accredited Financial Counselor who works with people in the realm of financial trauma, says that there are many ways to support a loved one who is struggling financially. He suggests, “Finding ways to provide a solution to a problem through educational resources, referrals, or hand holding through the financial hardship can create a sense of accountability and help empower your loved one to make improved financial decisions.” 

Providing alternative means of support can also help your loved ones become more financially independent. For example, you may offer a relative who struggles with overspending a tutorial on how to make a budget or research ways to make extra money. It may also help to work with a family financial planner together.

By empowering your loved ones to become educated about their financial situation, you can help them become more independent while also relieving yourself of financial strain.

Prioritize Your Financial and Mental Well-being

One of the best ways to help your loved ones in a financial crisis is to take care of yourself. It sounds counterintuitive, but if your loved ones depend on you in some capacity, it can mean you’ll be able to help them for longer. 

Alejandra Rojas, a trauma-informed finance professional dedicated to helping women entrepreneurs achieve financial stability, highlights the importance of evaluating the impact of providing financial aid to loved ones.

She explains,“If this support causes guilt, shame, or anxiety, it is important to understand the root causes within their personal 'money story' and work towards healing these underlying issues," Rojas said. "This makes strategizing financial support more manageable.”

For those who end up becoming a primary source of financial support for relatives, Rojas advises, “Seeking professional advice if financial support leads to struggle, resentment, or negative emotions, as maintaining mental health should be a priority.”

The Bottom Line

There’s no easy way to mix money and relationships. However, having a strategy that incorporates proactive communication and planning, setting boundaries, and prioritizing your well-being is a good start. The key is striking a balance between supporting your loved ones while safeguarding your financial and emotional health. Though you may never find the perfect solution, don’t get discouraged! Even taking small steps towards a big daunting goal can yield significant benefits for both you and the loved one you wish to support.