The Challenge of Relatives and Friends and Finances
“Insanity: doing the same thing over and over again and expecting different results.” -Albert Einstein
This reminds me of someone I know… me. I keep expecting someone I know to learn how to deal with finances in a better way, but it doesn’t happen. No matter how much I urge or hint or try to help, it never helps. I only get resistance and anger. And then I get an earful of complaints about money and requests for help. And the “help” that is wanted is “loans” of money that will never be repaid – these end up being simply gifts. Well, don’t let it happen to you! No, I don’t give this person money any more. But the requests for help of that kind keep coming. I doubt that I’ll ever see any of the dollars I have loaned. And there will be continual disputes about that. Don’t ever let it happen to you!
When you are loaning money to a relative or friend, make sure that you have the loan agreement in writing. I know that may sound harsh, but friends and relatives are often the worst for not paying back. Partially that is because they don’t feel the obligation to pay back on time, because they know that they are on a friendly basis. There is no urgency, because in their mind it is not like a bank or business loan. It is just between you and them. So it’s not as important. Putting it in writing expresses that it is important!
Another good idea to give incentive to pay back the loan is to have some kind of interest charge on the loan. This means that whomever you loaned the money to will have to pay back more than was borrowed. The only reason that you have this interest there is to provide that extra incentive to pay it back. Make sure this is in the written agreement! Another idea might be to only have interest charged if it isn’t paid back by a certain date. Or you can simply give the interest back to the person once it’s all repaid. But don’t ever tell them ahead of time that you intend to do that! That takes the incentive away. There are too many problems with getting your money from relatives, and having a proper agreement in place really can make a difference.
Some things you should make sure are in the agreement:
- How much the loan is for.
- Who to – include full contact information (address, etc.).
- Who from – again include full contact information.
- The repayment terms. Include how much, how often, and any penalties on missed payments.
- The interest rate charged and how often it will be compounded (or if it is simple interest, state so).
- What happens if the loan isn’t repaid. There can be penalties in terms of interest; you can register the loan against property (home, furniture, vehicle, etc.) for late payments or unpaid balances. You may even have the option of taking the person to court (although that can really hurt personal relationships).
- Any other provisions that you both agree on (and that are enforceable by law – you can’t promise things that would otherwise be illegal or unenforceable).
Remember that while you may be relatives, and be close and loving, you aren’t a bank or lending institution to be exploited. Yes, love money can be useful. But it must also be protected. Take care of yourself, too! To quote someone from a long time ago, “If I am only for myself what am I? If I am not for me, who will be?” (Hillel, ca. 60 BCE – 20 CE) This means that you must be generous, but also within reason. Don’t be taken advantage of.
Tags: loaning money, loans, love money, managing money, protecting your assets, protecting yourself from relatives
