Lending Money to a Friend

In tough times, you might consider lending money to a friend. You might need to borrow money as well, so it could be a two-way street. There are any number of ways of handling the issue, so I thought that I would give you some advice from the frugal living lending department - a department with some experience in this matter.

You need to have your own guidelines for lending money simply because it's your money, and you are the manager of that asset. I have my own guidelines, and I'm going to share them with you.

We've all experienced the "needy" in our lives. It typically starts in school with the kid who's often asking to "borrow" a piece of paper. You can see it on the street when panhandlers ask you for "spare change." It often takes the form of people who are known for "sponging" off of others.

It's not uncommon to have a personal relationship with individuals that always seem to "need" money, for whatever reason. Therefore, you should have guidelines, just like you should have guidelines for donating your money.

My Advice

There are three places you go to get money. I'm talking big money for a longer term loan, not $200 for a day or so. Here are the places:

  • a bank
  • your family
  • lifelong friends

That's it. If you can't get money at these places and from these people, then you probably shouldn't be trying to get it in the first place - you should be trying to earn it with a job or business of your own.

Lending Money to a Friend - an example

Here is a story about how I applied these guidelines in my life.

A family came to me asking for money. We were friends. I wouldn't say good friends, but friends nonetheless. They were in a tight financial spot. They wrote me a letter asking for money to help them out.

I read their note and gave them a call. I explained the three places where money should be obtained and pointed out that I wasn't either of those to them, and they accepted it. I think at the time of our conversation, they realized that they had overstepped with their request.

We all feel bad when others are in tough shape, be it physical, financial, emotional or what have you. When it comes to lending money to a friend, we need to carefully consider a couple of factors:

  • What's your vested interest in the relationship?
  • What's the integrity of the other person?
  • Are they responsible for their condition?
  • Who really should be lending that person some money?
  • Will they come back for more?
  • Are you helping or enabling?
  • What's the motivation of the person?

In the example above, my vested interest was limited. The people had integrity as far as I knew, but they weren't in a position to pay the money back. Health problems had hit them, but I also believed, based on my observations, that they were responsible in part for their own dwindling financial resources.

I wasn't aware of who should be lending them money, but I knew it wasn't me. I just didn't have that much invested in the relationship.

Would they come back for more? Possibly. Would I be helping or enabling? Perhaps a little of both.

In any case, I felt that the primary motivation for asking me was that I appeared to have money, and I might be a willing source of it. That's a great reason if you're asking for money, but a poor reason if you're the one that's considering lending money to a friend.

More Insight on My Approach to Lending Money

I'm a firm believer that you shouldn't be lending money to a friend, except for small and short term loans that are for the convenience of another. These loans are much like a favor that you might do for someone. They aren't to "keep them afloat" financially.

My approach is simply to give the money away, with no strings attached. It's simple and there are no expectations involved. It avoids hard feelings, and shows that you're willing to give some of the fruits of your labor to help your friends or family.

With that in mind, you can see that it's also another argument you can use when someone approaches you about lending money to a friend. You can simply say that you don't lend money, you give it away, and you only give it away to lifelong friends and family members.

Caution is Warranted

If you're considering lending money to a friend or a family member, just remember that you could be enabling them to be irresponsible with your money, especially if they were irresponsible with their own in the first place. Perhaps you won't want your money supporting an addiction or any other clear wastes of financial resources. And, this might very well be the case.

Also, if you lend them almost enough to get out of their financial mess, don't be surprised if you start having to share the blame because they're still in it. And, if you're willing to lend a sufficient amount to get them out of their financial mess, don't be surprised if the scope of their "needs" starts to creep ever larger and larger.

As I said, this is some advice from the frugal living lending department - a department with some experience in these matters of lending money to a friend.

Done with Lending Money to a Friend, take me back to Managing Money

There certainly is a broad scope of topics here at Frugal Living Freedom. When you think about it, money permeates so very many activities in our lives, therefore, being frugal encompasses a wide range of interests, from being employed to taking a vacation, and just about everything in between. Enjoy the variety, pick up some new ideas, and start making frugality a part of your signature.

I'm a big proponent of being debt-free, and I mean entirely debt-free - no mortgage payment. It's not essential for financial freedom, but you'll love the feeling once you get there. If you didn't have a rent or mortgage payment, how much more could you do for yourself with your current level of income? I suspect plenty.

If you ever hope to see an abundance of wealth, you need to plug the hole in your boat. The wealthy don't necessarily make lots of money, instead, they know how to hang onto what they make, and make it work for them.