Lending Money To Family and Friends

   Over the course of several long, hard summers working construction, I had painstakingly built up a prized collection of professional tools. Those tools, and the skills that I developed through those countless hours in the scorching sun made me the go-to guy for fixing small problems at my friends houses. For the price of a hot meal and a cold can, there was little that I couldn’t fix. 

   Then one day, a good friend of mine came and asked to borrow some of those tools. My skills weren’t needed, the job wasn’t that big, but he needed the tools that I had.

“No problem.” I said, “Just pick them up on Friday and drop them off at the beginning of next week.”

   Friday rolled around and I handed over a few of those recently cleaned and organized toolboxes. I wanted to help, and I wasn’t using those tools right now anyways. Better a friend gets some value out of what would otherwise be collecting dust on my shelf.

   But then Monday morning rolled around, and instead of a knock at the door bringing those tools back, I received a phone call, “Hey Brian, any chance I could keep these for a few more days? Something came up and I still need those tools a little longer.”

“Of course. How about you drop them off next weekend?”

“Sounds good, appreciate it buddy.”

   Next weekend came and went. Then the weekend after that. Finally, a few weeks later my friend showed up with my toolboxes. He sheepishly grinned as he returned them, with a chuckle and a bit of an apology. Other than a little impatience on my part, no big deal right?

   A little while later, when I finally went to use one of the sets that I had loaned out, and a long list of small things were either damaged or outright missing. To say I was furious was an understatement, especially since the one thing I actually needed? Of course that size wrench was one of the missing items.

Money is a tool.

   I recently recounted this story, when asked about lending some money to a family member. The friend who came asking for advice was slightly perplexed, “What does this have to do with my situation? My brother isn’t asking for a wrench, he needs some cash to get him through his current situation.”

   That’s when I needed to explain. Money is a tool. Nothing more, nothing less. Just as you would use a hammer to build or destroy, money does the same. It has the power to create, or take away. To build comfort, or remove discomfort. And while I may appreciate my tools, I certainly don’t want more wrenches for the sake of having more wrenches. 

   The philosophy you have about money will play an enormous role in how lending money to family and friends impacts you, and your relationships. 

Things to Consider When Lending to Family and Friends

Don’t Lend What You Aren’t Prepared to Lose

   Just as I learned from lending my tools, sometimes what returns isn’t in the same condition as what was lent out.

   There are stories abound of family or friends never fully repaying the loan (or never repaying any of the loan). This ultimately damages the relationships that you have. While borrowing from the bank may have a higher interest rate, what is the cost of your relationship with that other person? 

   Bringing a wallet into a relationship often has a nasty habit of increasing the friction between the two parties.

   While the advice can never be as cut and dry as, never loan to family or friends, a good general guideline is to never lend more than you’re prepared to lose. That way, if the worst comes to pass, you aren’t left in a tough situation yourself. This might even give the relationship a better chance of staying intact.

Count on Life Interrupting the Payment Plan

   As the weekend stretched into weeks on end, my patience was fraying. Where were my tools? We had an agreement!

   That irritation at the constantly changing terms of our arrangement certainly tested my patience, a test which, when trapped in my own mind, I certainly failed.

   Lending money to loved ones is no different. While the bank might shrug and say tough luck, it's a whole lot harder to do that when you care about the person. And while at first it seems like you’re just being generous, if you’re anything like me, that nagging voice of doubt will eventually start muttering. And those quiet whispers aren’t pleasant.

   Whenever possible, don’t send over money “just to cover this week”, because that one week could very well stretch into one month. If you have a need for yourself in the foreseeable future, it might be best to hold off getting financially involved. 

Ask Questions

   There are times when you might want to help out with a monetary loan. In those instances, you should try to get as informed as possible first. Ask questions, so you can set your own expectations, and to understand the needs. It’s never easy to ask for help, especially the way North American culture has conditioned us to provide for ourselves and our own. If a friend or family member is asking for help, it can be a sign of deep respect, and quite likely will help you feel good about helping out.

   Setting your expectations right from the outset will help you control some of those nagging thoughts that pick away at the strands of your relationships. Ask the borrower questions like:

Why do you need the money?

Who else is lending you money?

How do you plan on repaying me?

When do you plan on repaying?

   These questions will help you understand both the need, and also the plan in place to resolve the debt. And the plan to repay helps the borrower too. Good intentions only go so far, and beyond that, you need a rock-solid plan.

A Gift to You (of sorts)

   While this advice on lending money to family and friends may save many relationships over time, there is another solution. Don’t lend at all. Instead, can you make a gift of the money (some, or all of the requested amount). The gift towards a worthy cause for a loved one will help strengthen your relationship, and avoid the potentially high cost of borrowing in the future. And that high cost of borrowing isn’t interest or fees. It’s friendship. 

   When lending money to friends and family, your philosophy will play a large role in how that sits with you. But even if you aren’t unduly attached to the all-mighty dollar, it is always wise to have a few rules of thumb. 

Don’t lend what you aren’t prepared to lose. And most definitely count on life interrupting the best laid plans.

If you are dead-set on giving your loved ones some assistance, other than loaning money there is always another option through gifting.

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