You know what they say. Don’t lend money to family or friends.
I know what you’re thinking. Obviously, “they” don’t have any friends.
Well, taking a look back to a recent experience I had, being the sweetest soul known to man will not guarantee you any degree of financial security. You don’t need to be a cutthroat “Kill Bill” type but you do need to be smart about the moves you make with your money. Ultimately, you want to still be friends (or family) with the person that you’re helping long after the loan. Suffering through resentment because you can’t get your money back will poison your friendship. In fact, unfortunately, things can get pretty ugly - depending on who you’re dealing with + your way of dealing with things. So here are a couple of tips that you really should take heed to in money matters and BFFs.. BFs.. and the rest of them.
If You Can’t Manage Without The Repayment, DON’T Lend It To Begin With!
Things happen. Your friend may mean well, but just be down on her luck. Your friend might get conked over the head with a wine bottle and robbed the day she was supposed to pay you back. Your friend may be waaayyy to lax on this ‘friend’ idea and not really respect the deadline. The bottom line is rent will still be due on the first of every month. Your stomach won’t “understand” if you don’t eat because girlfriend’s boyfriend NEEDED that extra $200. If you can’t live without it, don’t lend it. This may be difficult for the bleeding heart types - I know. But ultimately, you’re responsible for the deadlines and the necessities in your life. It isn’t selfish to be mindful of what may become a great difficulty in your life. Also - if you already have yourself a Mr. Wonderful, and you and Mr. Wonderful depend on that money to live the family life, the last thing you need is a “sure thing” creating real friction in your household. Like you need another source of stress due to money in your life. I didn’t think so.
Real Friends Sign Promises. On Notarized Promissory Notes.
Listen closely. If you find yourself nodding in agreement to a loan with a buddy, you nod your head all the way to the notary public with a promissory note in hand.
A promissory note is basically a document stating that you “Ms. Wonderful” loans your buddy “Ms. Wonderful’s Good Friend” a loan in the amount of “Whatever Ms. Wonderful is lending”. This note also states the date the amount was loaned, the date the repayment is due, the interest rate that must be paid if any, and other nifty little details depending on the terms of your loan. This is very important because suppose, for whatever bizarre reason the future can conjure up, you are forced to take legal action in order to collect your funds- the promissory note is a document that allows you to prove you did, indeed, lend your friend money. It wasn’t a huge gift you suddenly handed over (people DO claim this in court with a straight face after the fact). Without documentation, you may have a tough time proving that you did have an agreement with “Ms. Wonderful’s Not-Such-A-Good-Friend-Now”. When you’re talking about a significant amount of money, this can really save your sanity.
Now, getting your promissory note notarized is just as important. Basically, both you and your buddy sign this promissory note before an official witness - the notary public. That means you actually go to such an official - not the unsuspecting bartender overhearing this agreement between the two of you. You go to a notary, or someplace that has one (for instance, my bank offers these services) and you get your promissory note signed and notarized. It is then an official document that you hang on to just in case.
A notary public is an officer who can administer oaths and statutory declarations, witness and authenticate documents and perform certain other acts depending on the jurisdiction. -Wikipedia
You usually provide the promissory note. You can always google to find these forms. You can download them for free or pay for one. Whatever you do, make sure you’re dealing with something clear and legible. You know, just in case.
Don’t Lend Money to Family or Friends
It’s age old advice for a reason. The problem with lending money to loved ones is this: If you lend serious cash to someone you care about, you still expect it back right? Sometimes the people we care about expect the relationship you have with them to excuse or “forgive” loans that you have no intention of forgetting about… especially if you can’t afford to. Tempers flare, words fly like knives, and those knives sever relationships. Sometimes those wounds heal, and sometimes the damage is permanent. It’s one thing to mow down a perfect stranger (Do you see the head of Chase Bank coming over for tea?). It’s another thing when the person you have to press (and you shouldn’t HAVE to press her so that’s yet another issue!) is someone you share love and memories with. Trust me. It can get ugly. So avoid it if you can.
How to Say No
If your difficulty lies in your ability (or lack thereof) to articulate your desire to say no because you don’t want to hurt feelings, there are a couple of things you should remember.
- Your money isn’t and shouldn’t be a barometer of your friendship.
Surely you know that a friend in need is a friend indeed. So yes, help your friend however you feel you can. However if money is not one of those ways, for whatever reason, you shouldn’t be penalized with losing a friendship. And hey, if that’s what happens, just what kind of friend were you dealing with here? - Be Honest. Be Clear. Don’t phrase your no as a maybe or a solvable problem because at that point, you offer a hope as well as an open discussion on how you can make it happen. If you know that it’s a no, then so should your friend.
- Be Sensitive. If your friend is asking you for money, surely she needs it and most likely it wasn’t easy. Your friend is in a vulnerable position and so pairing a no with cold replies just isn’t nice. You may not be able to offer the funds but you can offer an ear. That’s always appreciated.
If YOU Need to Borrow Money
Hey. It happens. So preserve your friendship as well as your credibility by being reliable. You offer your friend a measure of the same sacred Peace Of Mind she granted you by
- Signing That Notarized Promissory Note: Even if your friend thinks that isn’t a big deal, you display a respect for her friendship, her trust, and her money by getting that done. You are saying that you are serious about being responsible for these funds and it clarifies who said what when it counts. If you don’t think signing such a note is a good idea, you shouldn’t be borrowing money.
- Keeping in touch: If you know you’re not going to make that due date, speak up. It’s not a good feeling when a buddy doesn’t pay up AND disappears into the oblivion. You may see it as avoiding conflict but it’s the exact opposite.
- Say Thank You: This loan is an official transaction, yes. But you asked your friend, not The Suits and so a warm thank you is always nice. When you’re borrowing from someone you know, you’re borrowing from their immediate resources. This favor has a face, so bring it a smile!
- Be Understanding: If you get a no, or are surprised by the need for terms and agreements, put yourself in her shoes for a moment. It isn’t a personal attack against you - money matters can get sticky. Having a gracious attitude makes you the friend that CAN be the exception to the rule. It makes you the person someone won’t mind putting yet an extra mile trust and effort for.
The important thing is, when it’s all said and spent, you are still friends. A little preparation goes a very long way and spares you the grief.
That, my friend, would be my two cents.
Photo by: Blythe_D
My policy is the sum of money lent is proportional to the length of friendship.
Great article JEMi! Very informative and definitely a topic many people need advice on!
Keep up the great work! you’ve been Stumbled and subscribed
BRAVO MY DEAR CHILD
I really like your site… I found you through up and coming bloggers…
I added a review to stumble or whatever that thing is called… I’m honestly still figuring it out, lol
I’m going through this now! The most painful thing is that someone who has been my friend for more years than I care to disclose, has no remorse and has taken to allowing my phone calls go to Caller I.D.
The loan was for $250.00 and was only suppose to be for 48 hours (yeah right) just to cover a check. That was in October ‘07…not only does she give me a lame excuse when I ask her to re-pay me, she has been on two trips to Virginia and one to Atlanta since borrowing the $$$.
I’ve definitely learned my lesson, the hard way. But, I’ve learned.
@ Leon: All I can say is its your perogative!
@ Conrad: Why thank you!
@ Anonymous: Thank you for the feedback
@ Maxie: I’m very glad you like it. Thanks for stopping by!
@ Colored Girl: I’m sorry to hear that you had this happen to you. Now that you’ve learned, you know better and you can proceed with caution the next time around. Money matters really do get difficult between friends because of these varying degrees of actions taken.
Thanks for stopping by
I read a couple articles and I love this site! Very uplifting and well-written!
Great advice. Loved it so much, I Stumbled it. Man, I was raised never to loan money to friends and family and like a dolt, I’ve done it. Do you realized in all my years, no one ever paid me back? Even when going out to lunch and “Oops, I left my wallet in the office!”. NEVER. Now, my friends don’t understand why I ask for separate checks when we go out to eat. Once over the summer, a large group of us went out. One friend who is notorious for ordering $40 worth of stuff and only bringing $5 with her started mocking me for the separate check thing. I lost it. I pulled out my phone with my little Excel spreadsheet on it and said, “Well, just for the last 3 years, going out to eat with you has cost me $634.98, not including tip. I don’t have figures for the first 3 years we’ve known you, but I can easily come up with $400 off the top of my head, again not including tip. Now you can repay me what you’ve repeatedly promised in what amounts to over $1000 just for eating out or you can not mention my separate check.” Everyone else at the table didn’t say a word because they knew they were also on the list. She was just the worst offender. The only bonus is that during dinner everyone else was texting me to see what the owed and we got the money back from everyone, but her within two days.
Question: A good friend of mine is in a tight spot financially. I’d like to help her out, but I’m worried that lending her money might sour the friendship.
Answer: Adding money issues to a friendship can result in an explosive situation. The first thing you need to do is determine why your friend is having financial problems. Is this a temporary state, or does your friend always seem to be struggling? If financial panic is a recurring theme, you need to understand that in most cases the problem runs deeper than a lack of funds. Sometimes people overspend to assuage feelings of inferiority or inadequacy. Or they run up debts trying to find happiness through expensive possessions. Others are never inclined to set aside money for unexpected expenses and are consistently flattened by them. Unaware of the true reason for their financial irresponsibility, people like this usually have difficulty changing their fiscal habits.
If your friend is always experiencing financial problems, any money you give them will just serve as a Band-Aid, and sooner or later your friend will be in dire straits again.
Ask yourself: Can I afford the loan? What would happen if your friend never paid me back? How would you feel? If you cannot afford it, or if you are not willing to relinquish your hold on the money, don’t make a loan. On the other hand, if your friend is ordinarily financially responsible and you are sure you won’t need the money soon, draw up a loan agreement detailing how much you are lending, when exactly your friend will repay you, and whether both of you would feel better if the loan had interest.
One 2 One Lending provides the tools to “Get it in Writing.” The AgreementBuilder will walk you through step by step in creating a promissory note and loan schedule. This way your money will help not only your friend and it won’t destroy the friendship.
@ AEL: “If your friend is always experiencing financial problems, any money you give them will just serve as a Band-Aid, and sooner or later your friend will be in dire straits again.” - This is a great and valuable point. Thanks for your input
I give friends money, but I will not loan them money. I have loaned family money for hours or at the most 2 days. Like you said, be prepared for not getting it back. You know what, I just stop borrowing all together. I don’t even use credit cards anymore!
Natural Woman’s last blog post..Money Monday Tip #11
@ Natural Woman: Looks like you’ve found a system that works for you. When you lend money with the assurance that you can survive if you don’t get it back, you cut your stress level down at least where your finances are concerned. That doesn’t mean you don’t need your money back - it just means you didn’t dig yourself into a hole
You are definitely right. Especially about not managing without the money you just gave.