Awkwardness of Lending Friends Money

 Awkwardness of Lending Friends MoneyDear Eddie,

I know it’s been a while since we last talked, and I do sincerely apologize for not keeping in touch more frequently. Life has just been tough as of late, and to put the icing on the cake, I lost my job. Needless to say, your words are now haunting me, and I surely wish I listened to you and your suggestions to put money aside. Sadly, I chose not to listen to you and continued to spend foolishly on fancy dinners, nice clothing and dates with women who meant nothing more to me than a quickie. I miss hanging out, and surely miss our nights out on the town together.

Anyways, I’m virtually out of savings and I was hoping that you can lend me a thousand dollars. My severance check is en route, so I’m hoping your money loan will help me pay my next rent. I promise, as soon as my severance check arrives, I’ll have the money back to you.

Sincerely,

Jobless Friend

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Talk about an awkward situation above. Even though it’s just an example, lending money to friends will certainly lead to awkward moments in the future.

Your friend asked you for $1000, and you lent them the money. They promised to pay it back ASAP. That was three months ago, and still they’ve yet to pay you your money back. Your impatience is getting the better of you, and all you want is your money back. Now things are awkward and you’re stuck between a heart and a rock. Do you ask for your money back or simply give up on the friendship and the money all together?

Lending money to friends will become awkward sooner than later. Your friend may have needed the money for rent, but they’re out every weekend partying away. So what gives? Suddenly you’re quite interested in the spending habits of your friend. You begin to wonder; “Couldn’t my friend have stayed home this weekend and just paid me back my money?’

Who’s to judge.  You don’t want to come off as needy, cheap, desperate or someone who’s spying on the life of your friend. How does one approach the topic without coming off as desperate?

Not all is doomed though, there are ways to keep things clean and  possibly get your money back. You’ll notice that I said only the words clean and possibly. However, I’m certain you’ll still experience awkwardness at some point. In the mean time, let’s look at some options to safely administer personal loans between friends.

Secure Friend Lending Services

Two web services that pop out are lendfriend.me and wikiloan.com can be used to safely administer the loan between family and friends. The two systems are independent of each other, yet work on the same principle. Both of the systems create a ledger so you can both see when payments are due and paid. There are premium features available which allow you to use  PayPal to set up payments and  help you out to create a legal contract  between the two parties.

WikiLoan gives the borrowers an opportunity to enter their financial information, which prospective lenders can view before deciding to fund the loan. Asking a friend for a personal loan can be awkward, and with the help of these online services , the overall process is much easier for someone to ask you or for you to ask someone for a personal loan.

Create Your Own Agreement

Another option is to create an agreement between you and the friend or family member you’re lending the money. Simply state the amount and don’t forget to include the dates, when the money was lent and the mutual agreement on when the money should be returned. This way as the lender you have something in writing.

The above three options only address if you’re lending the money in the future. What if you’ve already lent money? I’m certain that if you’ve come to this point that you’re nervous about wrecking a friendship. I did say somewhere about things  getting awkward. However, the awkwardness of confrontation is worth the payoff of knowing where things stand, and more importantly what you can do to resolve the issue at hand.

Reach out, there is nothing to be ashamed of for reaching out. Explain to the borrower that your relationship is a priority, and be honest that it’s at stake as well. Offer to workout a payment plan, and if nothing works out, don’t be ashamed to walk away with your head high.

I’m sure you’re probably wondering what my response would be to the above email. So, here’s the response:

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Dear Unemployed,

You’re a dumb-ass. I feel much better since I got that out of the way.  I never start emails off like that, but seriously you’re a BIG dumb ass. I wish you would have just listened slightly at what was being said to you. I assure you that things would have been different.

I’m sure you’re probably wondering if I’ll lend you the cash. Me too. I’m also wondering if I should lend you the cash. Heck,  you’ve already been irresponsible, and your track record speaks for it self by not listening to some of my suggestions in the first place. However, I do have a heart. You know very well that I’m not the type to kick anyone when they’re down. Maybe on their way down, but certainly never when they are down.

So, here’s what I’ll do. I can’t spot you a full grand, but I’ll give you $800. Consider it an early Christmas gift. Would I like you to pay me back the money? Absolutely. However, I’m comfortable giving this amount to you and knowing that I may never see it again. The bright side of all of this, is that I would hate to throw our relationship down the toilet for $800. I’ll leave it up to you on how you handle this transaction from now on.

Sincerely,

Your true friend

Readers, have you ever lent money to a friend? What was the end outcome?

Eddie

Savvy shoppers know that it makes no sense to simply purchase an item in the first store they come to. The intelligent way to find the best product for the least amount of money is to comparison shop. Comparison shopping used to mean running from store to store comparing items in stock, but today’s consumer can do much more. Compare the products you’re considering purchasing online instead of in the stores. The advantages of this method are numerous, and simple to see.

Larger Variety

Local stores carry only a limited number of product models in their inventory. This cuts down on the possibilities of finding exactly the right model for your use. Comparing products online allows you to see the details on every model that every manufacturer offers anywhere in the country.

Variety of Opinions

Online comparison sites often open up their pages to comments from product users. Rather than relying solely on the claims from manufacturers, you have the ability to hear from people who have actually purchased and used these items in their homes. If you find dozens of opinions for or against a certain product, it can let you know valuable information you need before you make your purchase.

Saving Time and Money

Comparison shopping in person entails driving from store to store, often wasting hours of time and gallons of gas. When you compare products online, all the items are right in one spot, available to you without leaving your home.

More Information

Floor models or display models in stores are often lacking in detailed information. You can see the product, but not all the important details you may need to know before you use it. Manufacturers often fill pages on their websites with information about their products in the hopes that you will favor their items over their competitors’. This surplus of information allows you to make a more informed decision about your purchase.

Better Bargains

Products are often offered on many different websites online, just as they are offered in many different stores. Because of their lower overhead, online retailers are often able to offer products at a much lower cost. When a company doesn’t have to pay for the cost of running an actual, physical store, they can afford to discount the products and still turn a profit. This gives you the ability to purchase a much better product at a discount price.

Finally, some companies offer you comparison services of their own products – such as American Express, who let you compare charge card products and all of their credit card products on their own website.

Stash Your Cash: TFSA or RRSP

 Stash Your Cash: TFSA or RRSPMarch 29th, 2012 is the the last day to contribute to your RRSP, and with only nine days are left before the contribution, it’s crunch time for most. It’s been four years, since the Federal Government introduced the Tax-Free Savings Accounts (TFSA), and the endless debate continues on whether a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA) is the best place to stash your cash.

Even a bigger kicker to the mid section is in the amount of people are still confused on what exactly is a TFSA, but that’s a whole other story by in it self.

So, back to decision making of where to stash our cash, TFSA or RRRP?

Both accounts provide solid tax advantages. We don’t pay no taxes on any investment growth for the funds inside either account. Yet, two different accounts, and two different sets of rules.

Let’s use my self for example. I’m a regular contributor to the RRSP, and a recovering saver, with fairly good savings discipline.  I have two TFSA accounts and one RRSP account, however  I’m looking to go on vacation, and would like to use my savings to fund my vacation. If I paid for my vacation from my RRSP, I’d be hit with fairly atrocious taxes on the withdrawal.

So, instead I’m going to pay for my vacation from my TFSAs. One of the beautiful parts of TFSAs, is the ability to save money, and knowing that I’ll be able to withdraw that money when needed without penalty.

We all should contribute to both our  RRSP and TFSA accounts. One thing to consider that as we fund these accounts is an idea of how we want to use the cash in the future. Knowing the differences between the two options helps:

TFSA

  • Contributions are not tax deductible (you’ll not get a tax credit receipt to take to your accountant)
  • No tax is payable on any investment growth
  • The maximum you can contribute is $5,000 per year
  • Withdraws are not taxed
  • Any withdraws can be redeposited the following year (to a maximum of $5,000)
  • Over contributions are penalized (contributors should keep any eye on how much they’ve contributed in any give year)
  • Even with multiple TFSA accounts, the maximum contribution is still $5,000 per year, per person
  • If you’re opening up a TFSA for the first time this year (2012), your maximum contribution will be $20,000 (4 years X $5,000 = $20,000)

RRSP

  • Contributions are tax deductible (you get a receipt to take to your accountant for tax purposes)
  • Your contribution changes every year, and is based on a percentage of your annual income
  • Withdraws are taxed
  • There is no tax payable on any investment growth
  • Withdraws can only be redeposited if you have sufficient room in your RRSP
  • Special non-taxable withdraws exist, such as First Home Buyers Plan and to for education purpose

TFSA account was designed to supplement RRSPs. If you’re one of the lucky few, who maxes out their RRSP contribution, TFSAs are a great alternative. They provide us with another great way to shelter a portion of your investment earnings from income tax. Since any money withdrawn from a TFSA is not subject to tax, TFSA accounts give us a solid option to save for short term goals such as vacations, car down payment or use it as an emergency account.

RRSP accounts were designed with one goal in mind, to help us save for our retirement. Any contributions to our RRSP accounts will reduce our annual income tax.  RRSPs were never designed for short-term savings, and any money withdrawn from it (outside of education and buying a first home) will increase your annual income, resulting in more taxes to be paid.

Saving long term and for retirement, RRSPs are pretty hard to beat. If you have savings, contribute them to your TFSA and RRSP accounts. Even a better option is to incorporate your savings into your budget, where portions of your pay go towards your TFSA and RRSP.

Remember, only nine days left before the contribution window for your RRSP account closes. Get moving!

Eddie