The word

Friends and family: you love them. You'd do anything for them. But lending them money can lead to tension and awkwardness. If you feel tempted to help a friend in need, a strategic approach can help stave off disaster.

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Rule number one: never lend money you can't afford to lose. When you lend someone money, there is always a risk that they won't have the means to pay you back, so ask yourself one question: Can I afford to part with this cash permanently? If the answer is 'no', it might be best to prevent potential fallout by nipping the loan request in the bud.

If, however, you decide to go forward with the friend who wants to borrow money, keep in mind that you can be a caring, empathetic friend without becoming a doormat. Be strong: express your understanding of your friend's financial needs but be true to yourself. Be honest about what you can and can't do.

KEEP YOUR EMOTIONS OUT OF IT

When that down-on-their-luck friend or cousin (or even your own financially unstable parent) comes asking for a loan, you might be tempted to hand over cash before thinking of the consequences.

For the sake of the relationship, you may need to consider a request for money through a non-emotional lens. Applying a firm set of rules before reaching into your own pocket will prevent you from becoming an 'enabler' - someone who contributes to your friend or relative's reliance on other people.

Start by looking into why they need to borrow money in the first place, and why they're unable or unwilling to approach a financial institution to borrow money. It may be that they have a legitimate reason: they need money in a hurry for a lucrative opportunity. Or, while they are currently out of pocket, they will genuinely have the means to settle their debt by a specific date. If that's the case, you might agree to lend them some cash - but it's wise to draw up a contract (or promissory note) that binds your friend to the terms of the loan.

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