3719: [Part 2] The Right Way (And the Wrong Way) to Lend Money to Family and Friends by J.D. Roth of Get Rich Slowly on Financial Discipline

[00:00:00] Thinking about refreshing the carpet in your home? Now's the time to do it. For a limited time at The Home Depot, get 10% off installed carpet projects on trusted brands like LifeProof, LifeProof with PetProof Technology, Home Decorators Collection, and Traffic Master. Plus, with installation starting at just 49 cents per square foot, upgrading your space is more affordable than ever at The Home Depot. Offer valid September 24th, 2026 through October 4th, 2026. Exclusions apply. For licenses, see homedepot.com slash license numbers.

[00:00:31] This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18+.

[00:00:56] This is Optimal Finance Daily. The right way, and the wrong way, to lend money to family and friends. Part 2, by J.D. Roth of Get Rich Slowly. And I'm Justin Malek. Welcome back, or welcome for the first time if you're new here. This is where I read to you like a big, ongoing audiobook from many different authors. But today's a continuation from yesterday, so I'd recommend listening to yesterday's episode first.

[00:01:22] But if you're all caught up, let's get right to Part 2 and continue optimizing your life. The right way, and the wrong way, to lend money to family and friends. Part 2, by J.D. Roth of getrichslowly.org. The right way, to lend money to family and friends. When a friend or family member asks to borrow money, your first inclination is probably to help.

[00:01:52] But many people have learned the hard way that friendships and finances make a poor mix. My interaction with Joe is a typical example. Not all loans between family and friends end in disaster, of course. In fact, although I've never been able to find stats on the subject, I'd be willing to wager that most loans go smoothly. But the potential for trouble is so great that you should think twice before lending or borrowing money.

[00:02:22] How would it affect your finances and your friendship? Even when things do go right, the situation can get awkward. For instance, in 2011, I made a large loan to a friend for a business project. That project fizzled. For the past seven years, my friend has always made his payments on time, but he's had a tough time paying down the principal. For most of the life of the loan, he's made interest-only payments.

[00:02:49] This is a good deal for me, but not for him. My friend and I have maintained a good relationship, but it'd be even better without the money situation looming over our heads. You can save yourself a lot of grief by knowing in advance what you'll do when somebody asks to borrow from you. Some people decide they'll never make personal loans. If they're asked, they say something like, sorry, but it's my policy never to lend money to people I know.

[00:03:18] If you think this is too harsh, you can offer to help in some other way. Most of the time, you're probably better off saying no than putting yourself in a position where you have to hound a friend for money, as I've had to do with Joe. Despite these warnings, some of you will be tempted to lend money. If you do, follow these rules. You'll be glad you did. Discuss other options. Are there other ways to help?

[00:03:46] Sometimes people think money is the only way to deal with problems when there are actually other ways to offer assistance. Figure out what the root problem is and see if there are other ways to help solve it without donating dollars. Lend only the amount you can afford to lose. You may never see the money again, so don't put your own financial well-being on the line for your cousin Bob.

[00:04:13] Make sure your own situation is solid before you lend money. In my case, losing the $800 Joe owes me does hurt, but it doesn't change my life trajectory. Be clear about your expectations. Draw up a payment plan. You can use an online loan calculator to create a loan schedule and discuss what will happen if something goes wrong. Get it in writing.

[00:04:43] There are websites where you can fill out a form and for about $15, get a complete promissory note. There are also free sample templates online. When I loaned money to my friend for his business project, we had an actual written contract. Deal with problems right away. You may feel you're being kind by not sending a reminder that the payment is 30 days past due, but you're just setting yourself up for trouble.

[00:05:11] Let the borrower know you're keeping track. This is where I failed with Joe. I didn't like reminding him to pay, so I went radio silent for several months, thinking he'd simply man up. He didn't. Here's another idea. If you can afford it, and if it seems appropriate, consider giving the money instead. That way there's no ickiness on either side. If you get paid back, great.

[00:05:37] If not, you can feel good about helping out a friend in need. And remember, it's always okay to politely refuse. After my disaster with Joe, for instance, I decided to do something different with my Timbers tickets during the second year I was on the road. I simply gave them to Chris, my ex-wife. I know she loves going to the games just as much as I do. Do you mind if I share these, she asked. She ended up distributing them to our mutual friends.

[00:06:07] I lost out on the cost of the tickets in 2016, but I got to save my seats, I avoided hassling anyone for money, and my friends got to enjoy the Major League Soccer Champion Timbers in action. One last thing. At some point, you may be the one borrowing money from a friend or family member. You should do this only if you can't boost your income or tap an emergency fund. When you borrow, explain exactly why you need the money,

[00:06:36] put the deal in writing, and then stick to your word. Be proactive. Keeping your word is the most important part. That means repaying the loan as promised, or sooner if possible. Take this as seriously as you would any other financial obligation. In fact, take it more seriously. If you don't pay the bank back, you'll damage your credit score. But if you don't pay back a friend, you'll damage that friendship and your reputation.

[00:07:06] You don't want to end up like me and Joe. You just listened to part two 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. And I'll be right back with my commentary. I spend my day reading, recording, and keeping information organized. So the idea of having useful details right in my line of sight caught my attention.

[00:07:37] RayNeo iO smart glasses use the Firefly Nano optical engine with an ultra transparent display, so you can see information without blocking your view. They weigh just 33 grams, and the battery is designed for up to two days of everyday use. What stood out to me most is the productivity side. You can get live captions with real-time translation across 55 languages and 109 accents. And there's an AI teleprompter with auto-scrolling,

[00:08:06] which, as someone who records for a living, is especially interesting to me. There's also LifeLog, which can capture moments hands-free and turn your day into an organized summary or journal, so you can stay more present instead of constantly reaching for your phone. If that sounds useful to you, check out the Rayneo IO smart glasses at rayneo.com slash OFD.

[00:08:30] Back in 2010, I started tracking every penny coming in and going out in a spreadsheet. Back then, I wanted to know where my money went. These days, I'm thinking more about where I'm headed. Monarch makes that easier by putting my accounts, investments, spending, and savings goals in one place. I still care about every penny. I just don't want keeping track of them to become a second job. I like that it doesn't just show what I've spent,

[00:08:58] it helps me plan bigger purchases and see whether I'm on track while there's still time to adjust. And the AI weekly recap flags spending spikes and upcoming expenses. It's like having a financial advisor in my pocket, a heads-up instead of another spreadsheet to manage. Write your own money story with Monarch. Use code OPTIMAL at MONARCH.COM to get your first year of Monarch Core half off at just $50.

[00:09:26] That's 50% off your first year at MONARCH.COM with code OPTIMAL. Thank you again to JD. If I had to boil his whole list down to one thing, it'd be, if you can afford it, just give the money instead of lending it. Because that removes what ruined their relationship, the debt hanging around. When it's a gift, there's nothing to track, nothing to resent, and nothing to avoid.

[00:09:55] If they pay you back, great. If they don't, you already decided you were okay with that. And I really like the rule, only lend what you can afford to lose. If handing your cousin a few hundred bucks would really hurt you if it never came back, then the answer isn't a loan. It's a smaller gift, more saying no. The other part I found interesting is his point that you should take paying back a friend more seriously than paying back a bank.

[00:10:24] The bank can affect your credit score, but a friend will lose trust in you, and that is a lot harder to rebuild than a credit score. So whichever side of it you're on, protect the relationship first. So a great one from JD to consider. Please do consider it, and I'll do the same. But that should do it for today. Have a great day, and I'll be back tomorrow as usual, where optimal life awaits.