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020. Friends vs Money

Friends are for a lifetime. At least that is what we would like to think, but on occasions friendships have been ruined for various reasons. Topping the list of reasons friendships get ruined is disagreements over romantic relationships and money. People often say money is the root of evil. Believe me Hunty, when it comes to friendship loaning or borrowing money from friends is a bad idea. In the words of William Shakespeare from the play Hamlet, “Neither a borrower or a lender be, for loan oft loses both itself and friend!” If you elect to allow friends to borrow money you should plan on the potential loss of not only your dividends but your friend as well. Why? Lending money often created new dynamics in your relationship. Just like in a legal business agreement, the borrower becomes the debtor to the lender whom is now considered the creditor.



So why is loaning money to friends such a horrible idea? Anyone who has ever watch an episode of a reality television court show knows that people become irrational when it comes to money. Even the nicest people can turn vicious when their finances are on the line. This is an important money lesson to keep in mind in your decision to offer your financial assistance to someone. When loaning money to others we believe that we are helping them in some way. We are providing short-term relief from financial burden and a peace of mind. The truth is once you loan money, you are enabling them more than helping them. Additionally, once money has been lent once, you increase the chances of the borrower asking to borrow more money in the future. Depending on the amount of money, it is likely the person is asking you for money because he/she is not in good enough financial standings to acquire a loan from a financial institution. There are numerous side effects to lending money, it’s always awkward to ask for the money back, you may have needed the money yourself (which in this instance can lead to resentment), and almost instantly the relationship becomes strained. Unlike most business loans, loans to friends or family members are typically informal and lack terms or expectations for repayment. Establishing an open-ended agreement in this manner is bound to generate issues from the start.


If you reminisce on past experiences either lending or borrowing money, you may realize from the moment the transaction took place distance was created in the dynamics of the relationship. Dave Ramsey explains this change in his book The Total Money Makeover, which he states “We don’t control how debt affects relationships; debt does that independently of what we want. The borrower is a slave to the lender; and you change the spiritual dynamic of relationships when you loan loved ones money. They are no longer a friend, uncle, or child; they are now servant.” Regardless of your expectations and the results you plan, in most cases, debt changes the relationship between you and the borrower. While lending money is an awful idea, if you have a friend or family member is dire need and you choose to offer your assistance in their time of need. Instead of lending money to that person give them the money as a gift. By “giving” your loved one the money you, you are eliminating the expectations of recoupment of your investment. Both you and your loved one will have peace of mind in this concept yielding an uninterrupted relationship. If you are not in the position to give money to someone, if you do choose to let someone borrow money make sure in doing so you establish clear expectations and guideline for repayment from the borrower. When you have made the sound decision to lend your financial assistance, you have to ask yourself how important it is for that person to repay you. What’s more important your money or your relationship with the borrower? How concerned are you about repayment? If he or she slips from their scheduled repayment plan, you’re going to have to go down one road or another. You’re far better off deciding before it gets to that point so that emotions don’t get in the way if that time comes. Additionally, once you have decided to offer your assistance, make sure you get clear details of the loan in writing. Write out the mutual agreement for repayment, along with the expectations of both parties involved in the agreement. You may want to include in your agreement, the timeline and schedule of payments for repayment, how the person will pay you back, and contingency plans if the terms of the agreement are not uphelp. Your best option is to go through this documentation process before ever handing over the money. Require that a promissory note be signed by both of you before you hand over the money to the other person.


Being that you can't predict what will happen in the future, you should always keep in mind that you may not get your money back. So what do you do in the event a friend or family member has an unpaid debt to you? If a loan is unpaid, don’t let the issue sit around unresolved. You need to decide whether or not you’re going to consider the loan a gift or you’re going to actively pursue repayment. The longer you allow the loan to sit there unpaid while you have negative feelings about the situation, the greater the damage you’re going to do to your relationship with that person. If the amount was large enough, you can take legal action as a last resort. In this case, you may want to consider additional fees such as court costs and attorney fees. Not only that, your friendship will most likely be in jeopardy. Act quickly and accept your decision one way or the other.