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:
- Depending how close you are to the person, money isn’t worth ending a friendship over.
- 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?