April 28, 2011, 6:00 am

How You Can Prevent Money From Ruining a Friendship

by: MD    Category: Financial Cliché
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Money and FriendsFriendship and money. Always a fun topic. As you work on growing your career, starting a side business, and trying to get out of debt, you’ll start to feel overwhelmed at times. We all know that there’s nothing like going out with friends to shoot the breeze and have a few drinks. What would happen if you lost your friends over money? What would you do if money ruined a friendship? These are all thoughts that we don’t want to think about. The reality is that we will friends over money issues.

I wanted to talk about how you can prevent money ruining a friendship and to look at ways to overcome awkward financial situations:

Loaning money.

I personally am totally against the idea of loaning money to friends. A financial loan between two long time friends or family members is always going to be awkward. You’re either going to have to be on the side where you swallow your pride and have to ask a friend for money or you’re going to be on the side where a friend comes to you to ask for money. Both sides suck.

My advice on this issue is simple and I feel that one question needs to be answered by both parties: how will this money be paid back? If a friend can’t pay you back the money for whatever reason this will cause obvious hardship on your friendship. This is why you need to come to an understanding right away before the money is handed over. There needs to be a plan for paying the money back and a deadline in place. If not, then you might not see your money for a long time, which would definitely kill the friendship. I also recommend that you loan an amount of money that you’re comfortable with never seeing again. There’s always the slight possibility that your friend won’t be able to pay you back. You don’t want this amount to be high enough to ruin your own financial situation.

Splitting the bill.

Loaning money will get odd and so will splitting the bill when you go to a restaurant that’s way out of budget for one of the people involved. It’s easy to get envious here. If you make $30,000 a year and your friend that you’re at dinner with just pulled in a new salary earning him $100k per year, the natural instinct will be to want them to cover the bill or to pay a larger chunk. They make more money than you, so they should pay more of the bill. This isn’t how it works though.

From my own experience I found that the best way to deal with splitting the bill is by deciding on the location in advance. Everyone should agree on the location in advance, instead of being surprised about getting dragged into an expensive place. If you’re budget is tight you really don’t want to get stuck in a restaurant where the main course is over $50. If you’re the friend that has a deep financial buffer, you don’t want to put your friends in a position where they’re spending way too much money on food. By deciding on an affordable location in advance you guys can all enjoy your evening with worrying about how much the dinner will put you behind on your budget.

At the end of the day there’s a solution to every awkward situation that will arise between you and your friends as it relates to finances. This is just apart of life. With that being said, it’s time for some general tips to help you not resent your friends for making more money and how you can benefit from hanging out with friends that make more money than you:

Don’t hate someone for working hard.

We have a friend that makes lots more money than us. The major caveat is that he works insane hours. I’m talking 18 hour days with no social life at all. I’ve heard others make remarks about him and how he’s so rich. It’s simply unfair to resent someone that’s willing to put in the long hours to earn more money. We all have different values in life. Some of us value money more, while others place a greater emphasis on the relationships in life. Either way, it’s not worth resenting anyone for holding different values than us.

Use this as motivation.

You have tangible proof that it’s possible to earn lots of money in life. Don’t fall behind in life by chasing false hopes and trying to get rich quick. Very rarely does anyone get rich quick or while slacking off all of the time. Being around like-minded people should motivate you to strive for more.

You should never let money get in the way of a solid friendship. Hopefully after reading this article you’ll be able to better deal with financial situations with your friends.

(photo credit: petroleumjelliffe)

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Comments

I normally never loan money to friends or it is a trivial amount that I won’t care. I hate splitting bills, so we just pay our own. That has never been a problem. Regarding paying based on earnings, unless it is a special occasion, it seems inappropriate.

I use my friend’s money as a way of bringing our friendship closer. I have a friend who makes a buttload more money than me, I’m talking like 10 times more, and I make a lot already. So we invest together. We still put in equal amount, and he obviously invests outside what we do together, but through him I get opportunities that I would have a harder time getting in on.

I have some other friends, and even my brother, who is very guarded about money. They seem to be afraid that they don’t make as much as I do, so they don’t want to hear about opportunities, or are suspicious, or whatever. As a result, we don’t help each other and their money doesn’t grow while mine does.

Loaning friends money is never a good idea… every time you see them and they haven’t paid you back, you’ll just look at them with resentment. Eventually that resentment will drive a wedge between your relationship.

My friend learned her lesson the hard way- she loaned her roommate $2000 to which the now ex-roommate never returned.

[...] The Financial Blogger shares tips on how to prevent money from ruining a friendship [...]

For me, I have a lot of difficulties when going out with friends for drinks or food. I am pretty frugal with the amount of money that I spend on eating out/drinking out. My friends don’t worry about spending $60 or $80 at the bar in one evening. My solution is to still go out with them, but be up front that I’m not going to eat/drink very much and focus on the personal interactions.

[...] Financial Blogger:  How You Can Prevent Money From Ruining a Friendship  – I had a friend that was going to loan another friend a few thousand dollars!  I should [...]

[...] How You Can Prevent Money From Ruining a Friendship: Don’t let money get in the way of a good friendship. MD at The Financial Blogger takes a great look at the impact money can have on friendships — and what you can do to avoid negative consequences. [...]

I learned the hard way that lending friends money is a sure way to end that friendship. Now when a good friend asks for a loan and it is an amount that I can part with for good, I simply tell them that this is not a loan and I am giving them the money.

If I can’t afford to part with that money for good, I don’t give them anything. It’s extreme, but it works and is far better than losing a friend.