Let me start off by saying that I’ve been burnt when I lent money friends so I’m a little bit jaded. Most people would add this to the list of stupid money decisions of my youth, but I also want to point out that I was lucky enough to be one of the very few people who was working at a well paying job while in school. But being burnt doesn’t mean that I don’t help when someone asks for it. You can’t call yourself The difference is that I get things in writing and get a better idea of why they need the money.
The truth is that now my friends and I are in our 30’s we don’t actually just borrow money for the sake of boring money anymore. Yes, there are the fringe events like forgetting your wallet, or not activating your new credit card on time. These things still happen, and more often than not over dinner or drinks, and you can easily buy lunch, pick up the tab next time or send money online when needed. You don’t even have to think about lending money if it’s a responsible friend. The times that I’m more concerned about are the times where more than a few hundred dollars are involved.
There are quite a problems with lending money to friends. These include the following:
1) There is no set timetable to be paid back. Yes, you get pushed to the back of the line when it comes to be paid back.
2) You can kiss any potential interest earned goodbye.
3) You become their get out of jail free card. The more you help someone out with little to no consequences, the more they will ask for. Obviously this is not always the case, but you do start to notice a pattern quickly.
4) Your relationship becomes strained. They think of paying you back everytime they see you, and feel weird being involved in anytime money is involved.
5) Asking for money back is REALLY awkward. Can you imagine that conversation? Especially if it’s a close friend or a family member.
6) You might not get it back. Money Magazine reports that 27% of those who lend money to family members never get it back anyway, and 43% aren’t paid in full.
I did mention that I still lend more, but now have a payment terms, and a contract (normally over email) just to cover my bases. I also send emails with updated balances when they pay me back a portion to make sure that we’re all on the same page. We’re not kids anymore, most of have credit cards, bank accounts, and lines of credits, and hopefully an emergency fund to save the day. But what happens if a friend reaches out and asks you to help them out. Do you do it?