3718: [Part 1] The Right Way (And the Wrong Way) to Lend Money to Family and Friends by J.D. Roth of Get Rich Slowly on Family Finances

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[00:01:00] This is Optimal Finance Daily. The right way and the wrong way to lend money to family and friends, part one, by J.D. Roth of getrichslowly.org. And I'm Justin Malek. Today, I have a bit of a longer post. I'll read the first half today and then finish the rest for you tomorrow. So with that, let's get right to part one as we optimize your life.

[00:01:24] The right way and the wrong way to lend money to family and friends, part one, by J.D. Roth of getrichslowly.org. There are those who believe that money writers lead perfect financial lives. Ha, would that it were so. When we get together, we often share stories about the dumb things we've done. Today, my friends, I want to tell you about an instance in which I failed to follow my own advice,

[00:01:53] an example of how not to get rich slowly. For several years now, one of my indulgences has been season tickets to the Portland Timbers, my hometown's professional soccer team. I've been a Timbers fan since I was six years old. I used to listen to their exploits on the radio during the 1970s. I can still sing Green is the Color from memory. When the new Portland Timbers joined Major League Soccer in 2011, I jumped at the chance to buy season tickets.

[00:02:22] After Kim and I decided to embark on our RV adventure across the U.S., I thought I'd have to give up my seats. I was sad. But then my friend Joe made a great suggestion. Why don't you sell them to me for the season? A win-win, right? Well, sort of. What not to do? Joe paid me for half the season when I renewed the tickets in the autumn of 2014. Before Kim and I left on our RV trip in March of 2015,

[00:02:52] he gave me an $800 check for the remaining balance. Then, on the night before we left Portland, he sent me a text. I'm in the process of changing banks. If it's no difference to you, tear it up and tell me where to send a new check. I replied with my home address, which Joe already had, but didn't hear back. I sent another text in April, but got no reply. In May, we connected.

[00:03:19] Joe agreed to send the check to Colorado where we'd pick it up while visiting Kim's mom. It took me a while to reply with the address, but when I did, nothing happened. No big deal. I'm an easygoing guy. I figured we'd just connect elsewhere on the road. In September of 2015, Joe and I finally connected again. He told me he had a check sitting on his desk, ready to mail. I suggested he send the money by PayPal and gave him my contact info. Nothing happened.

[00:03:49] I pinged him again the next week. Nothing. The week after that? Still nothing. When we finally connected again in late October, Joe had a sob story for not paying, but promised to send the money right away. The holidays came, and I forgot about the $800. But Kim didn't. The debt gnawed at her more than it did me. I can't believe Joe hasn't paid you, she said. I shrugged.

[00:04:18] In late February 2016, Kim sent Joe a text asking if he was ever going to pay. This made Joe cranky. He texted me and asked what was up. I did pay you, he said. I sent the money by PayPal. I checked my PayPal account. I had never received payment from him. I sent Joe an email outlining the entire sequence of events. I tried to keep my tone calm and reasonable, because truly I wasn't angry,

[00:04:45] but I wanted him to see things from my perspective. He'd had a year to pay me for the tickets, but hadn't managed to do so. Joe wrote back immediately. This is insanely frustrating. First of all, JD, I think you're a great dude, and I appreciate what you were trying to do here for both of our benefit. You clearly have a good knack for letting things slip through the cracks. While Joe wasn't wrong, I do have a knack for letting things slip through the cracks, I found his logic puzzling.

[00:05:15] His failure to pay was a result of my slow replies. I wrote back, it's not my responsibility to manage this situation. I haven't let anything fall through the cracks. You are the one who owes the money. As such, you are responsible for paying in a timely manner. You, as the debtor, are responsible for repaying the debt without the lender having to hound you. I've given you my mailing address and my PayPal address repeatedly,

[00:05:44] yet never received payment. I've also followed up several times without any sort of reply from you. It's true that I haven't always been prompt in my own replies, I own this, but that lack of promptness in no way changes the fact that you've had the info you need to pay since March of last year. I don't want to argue over who should have been better at communication. I love my big buddy Joe and don't want you to feel like I'm dogging you. As I said before, I'm not angry,

[00:06:14] but I think we can both agree that we need to get this fixed. Joe never replied to my email. It's now February of 2018, two years since I last heard from my friend, and I suspect I'll never get paid. One thing's for certain though, at this point, our friendship has disappeared. That's too bad. I, for one, would be happy to patch things up. I like Joe. Joe. I'm not sharing this story to demonize Joe. Obviously,

[00:06:44] I think he's ultimately responsible for this situation, but I acknowledge that on my end, I've been a poor communicator. Plus, if I had deposited his check when he gave it to me before the RV trip, none of this would have happened. No, my aim here is to provide a real life example of what can happen when we lend, or borrow, money from family and friends. There are smart ways to do this, and there are dumb ways. Joe and I chose a dumb way.

[00:07:14] And yes, I realize this didn't start out as a loan, but that's effectively what it is now. Let's look at the right way to lend money to family and friends. Hear that on tomorrow's episode. You just listened to part one of the post titled, The Right Way and The Wrong Way to Lend Money to Family and Friends by J.D. Roth of getrichslowly.org. I'll be right back with my commentary.

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[00:08:39] check out the Rayneo IO smart glasses at r-a-y-n-e-o dot com slash o-f-d. Flowing ad budget on metrics that look great till the CFO sees them, that's bull spend. And marketers are calling it out in Dashboard Confessions. I remember telling my boss, it'll be good for the brand when leads were slow. Yeah, it wasn't. Cut the bull spend. LinkedIn lets you target by company,

[00:09:08] job title, and more. Advertise on LinkedIn. Spend $250 on your first campaign and get a $250 credit. Go to linkedin.com slash campaign. Terms and conditions apply. Thank you to JD. Terrible to lose a friend over $800. It's easy to tell ourselves it's just a loan between friends. But once that money sits unpaid between two people, it changes the relationship. There's this tension every time you talk, and eventually,

[00:09:36] it's easier to just not talk at all. And I like that JD doesn't make himself out as the innocent victim. He admits he was a bad communicator, and that he went silent for months, hoping Joe would handle it. And I've done the same. When something feels awkward, it's so much easier to avoid it and just hope it resolves on its own. But avoidance almost never fixes a money problem. It just sits there and grows until the relationship breaks.

[00:10:07] So even before we get to his actual rules tomorrow, I think there's a lesson already. If you've got money sitting between you and someone you care about, the worst thing to do is to go silent. But we're just halfway through the post. We'll finish the rest tomorrow. So for now, thank you for being here and listening every day. And I'll see you tomorrow where we'll finish up this post and where your optimal life awaits.