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Monday, March 27, 2017

Friends and Money

Posted by Dave on July 6, 2010

I don’t really talk to my friends about money all that much.  A couple of them read the blog and know my thoughts on spending and my goals for retirement, but it’s not really a topic that gets discussed when we get together.  I have never loaned money to a friend, but probably would if I was asked and there was a good reason why it was needed.  In the past there were a couple of situations however where money did come up and I thought I would share how my wife and I dealt with the situations.

The first situation was an investment opportunity for me.  One of my high-school friends was starting up a tech company in 2003/2004 whose business was making cell phone games, which at the time was not a big seller in North America, but had sizable growth opportunities in Europe and Asia.  I really knew nothing about the company, they had no financial statements and all I was going on was the enthusiasm shown by a friend over his new company.  At the time, I was just out of school and had approximately $20,000 in student loan debt to pay off and really no cash in the bank to swing any sort of major investment.  I ended up putting $2,000 into the company.  I didn’t feel pressured to invest in the company, I saw it as an opportunity to share in the possible success of a friend’s business.  I decided on $2,000 because it was the most amount of money (at the time) I was willing to invest that I could lose and have no hard feelings over the loss.  Today, given the same opportunity, the amount would probably be considerably more, as I understand my risk tolerance better as well as having more disposable income available for an investment.

Today, the company is very successful – they are building games for the iPhone and for a three or four-week period had one of the top selling games available, and at some point in the future I may make a decent return on my investment.  I am glad I invested in the company, but even if it would have gone belly-up in the first three months I don’t think the loss would have impacted negatively on our friendship.

Another situation came up with my wife and one of her friends.  This friend was terrible with money, had lost her job and was on welfare.  My wife was talking to her on the phone and was asked whether the friend could borrow money to pay for heat in the house (it was December and the bill was significantly past due).  My wife “loaned” her the money by paying the bill directly, with her friend promising to pay her back as soon as possible.  My wife did not really expect to see the money back, but every time they talk on the phone her friend brings it up and feels bad for not being able to pay it back, for various reasons (needing to buy food, the car that gets her to work broke down etc.) .  In that sense, it is something that has come between them, as her friend feels bad every time they talk for not repaying the loan eight months later.

From these experiences I’ve come to two conclusions in dealing with friends and money:

  1. Depending how close you are to the person, money isn’t worth ending a friendship over.
  2. Count the money as gone as soon as it’s given away, it will mean the loan/investment will have little to no impact on your friendship and if the loan/investment is returned it’s more of a bonus rather than “counted on” money.

How do you deal with friends and money?  Do you talk about it with them?  Would you (or have you) loaned a friend money?  If you have, has it worked out?

Comments

6 Responses to “Friends and Money”
  1. George says:

    I’ve loaned coworkers money in the $100-200 range to tide them over until the next paycheck while they dealt with something that was interrupting their concentration at work.

    My friends know how to handle money, so it’s not issue that comes up.

    I, too, have invested in a friend’s startup company to good profit (anyone ever hear of Magic: The Gathering?).

  2. George says:

    Lending relatives money has been much more difficult.

    My sister (no dependents) takes offense when it is a loan and is never entirely happy with the gifts as they’re smaller than she is always hoping for. Fortunately she treats the loans from us with respect and borrows elsewhere to pay us back . If only she’d manage her own finances in a responsible fashion…

    We don’t even bother lending my brother-in-law any money as we know he’ll not be able to pay it back (usually has too many dependents for his income and ex-wife had no sense of how much she spent), so he’s always gotten gifts the same size as my sister receives. Typically for keeping the heat on, which means he’s a little embarrased to accept the gift.

    My brother we end up gifting in non-monetary terms and he’s been able to manage without asking us for a loan, despite having one dependent and a very low income.

  3. Future Money-Bags says:

    My friends know I am very careful with my money and work very hard for it, so when someone asks me for money I know they will pay back.
    There is always the risk that they won’t, but I make it clear that I want/need it back, but they have a certain period to do it. I make up a contract and payments if needed.
    I have not done this a lot, but I payed off a friends CC once, and made him promise to always pay it off in the future as it would wreck his credit and explained how bad debt was; They payed me back within the week via: Direct deposit.

    Since I am so careful and frugal with my money, I can’t just lend out money thinking that I will never get it returned. If I think that than I may not ‘loan’ it out at all.

  4. Dave says:

    @ Future Money Bags: I’m careful and frugal as well, I think I just put myself in the mindset that I won’t see the money again as I would rather maintain the friendship than worry about the loan outstanding. So far I have yet to be burned in this kind of situation.

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