Friends + Money = Disaster

We've seen it many times of the small claims court television shows. Friends and family relationships have been tested over money issues. I had an unofficial and rarely enforced policy of not loaning friends money, but I never seem to stick to it. It's the ones I know will pay me back that don't ever need money. See the correlation?

It's usually our most responsible friends who we'd loan money to in a heartbeat that don't ever have financial issues. It's because...well, they're more responsible. But, the real problem is not the money. The problem that people run into is not having a clear understanding of the terms of the loan and the awkardness of enforcing repayment. So, I'll share a few tips to help you maintain a friendship with someone you've loaned money to.

1. Do not loan money that you will need back.
I have an understanding with myself that if I am in need of the money for my own livelihood, I will not make a loan. There is always a possibility that your friend will not pay you back as agreed - if at all. If you have bills to pay next week, you may want to pass on loaning your friend that $100.

2. Document all loans.
Although slightly awkard, document your financial transactions with your friends and have them sign in agreement. An email, text message, or paper is sufficient. Just have it in writing. This is in case they start singing, "it was a gift" tune. This also helps to keep track of how much has been paid back and when.

3. Do not loan money to any and everybody.
You are not Bank of America. Do not feel bad about saying no to a loan proposal. If the person makes you feel bad for not loaning them the money, they are not your friend. That also tells me that you're less likely to pay me back if you start popping off because I won't loan you money. Tsk, tsk!

When asked, simply tell your friend that you're sorry, but you're unable to help them out and offer support in another way you're comfortable with. That's all the explanation you owe. 

4. Know your friends.
Privately, acknowledge the type of people your friends are. If they always have some sort of financial issue going on and can't keep a job, keep that in mind. If their cell phone gets cut off every other month, but their hair is done weekly or they tore up a mall copping those new Jordan's (eye roll), keep that in mind. As much as you like them, you need to separate their ability and desire to pay you back from your friendship.

Next, we'll discuss how to handle yourself if you've been burned by a friend on a money matter. 


Stay tuned!

Posted in: Friendships,Personal Finance