Green Panda Treehouse

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Photo Credit: Pwbaker

Lending money to friends and family is a tough situation. Perhaps you want to help someone with a geniune need, but you’re not sure if they’ll actually pay you back. Both parties are put in a tough spot. How do you handle it? Well, since I think most people are inclined to want to help out, I include some cons to loaning money. It’s up to you to weigh the options and come up with the right answer for you.

Some Reasons NOT to lend money.

1. You can’t afford to lose the money. If this loan will be a strain on your finances and family, then don’t loan money.

2. You will not be able to see your friend in the same light and it puts a strain on your friendship.

3. Your friend will keep looking for a way to repay due to guilt or they’ll resent you for giving the loan.

4. You can become an enabler of his/her bad spending and non-savings habits. Some people just don’t budget well and giving them money will not solve that problem.

What you can do:

• Don’t loan them the money. If giving them money would make it worse, then don’t loan them the money.
• Give a smaller one time gift. Remember give what you can lose. It removes the tension of being in debt to someone without you going in debt.
• Share with them some ideas on how you budget. Sometimes it’s a matter of helping one learn to fish. Without pulling out numbers, just show them the basics of budgetting. Be careful with how you approach them with this. Nobody wants to feel like a fool.
• Share with them some ideas on how you cut costs. Be tactful and show them what money saving habits you’ve developed.

If you do loan the money:

• You have the right to have it put into writing.
  • Include how much is going to be repaid, how much each payment is, and how frequently they’ll pay. It’s not just a protection for you, it’s to help clarify what the plan is.
  • Having this can reduce having awkward conversations.
• You have the right to know why you’re loaning them the money. Is it for neccesities or it for vacations or a business venture? Obviously having this information will determine if you loan the money or not.

It’s ultimately your decision, but please consider it carefully. Have you given or received a loan between family or friends? How did it turn out?

Some references:

• Lending money to a family member
• When Should You Say No to Those Who Want to Borrow Money from You?

Photo Credit:  massdistraction

Recently I wrote about our rough draft plans for our tax refund. I got some nice feedback and some interesting thoughts on it. The post also sparked another conversation between my husband and me. I decided to share some information about how our accounts are set up and the idea behind our budgeting.  

Curious to see what’s under our hood? Here are the accounts by ownership:

Ours:

• ING Checking: This is the account where we pay our ‘joint’ bills like rent, groceries, light, internet, etc. We prefer this account as it has no minimum balances, no fees, and it earns interest. This has deposits from both of us. I deposit on a weekly basis and my husband deposits bi-weekly. It goes with our paycheck schedule and it works well. We have a buffer built in just in case something crazy comes up.
• ING Savings: This is our emergency fund/sinking fund/housing fund account.  We like to keep the money together in the bank and then we ‘separate’ it on a spreadsheet. I like to see a larger number, as it gives me motivation to make it grow. The interest rate is more than 10x higher than out previous Bank of America savings account. As of today, though, it is now 3.65%. (*sighs I loved my 4.1%) Any leftovers we have from the checking are sent here. Our tax refund was going to go in here, but my husband is persuading me to use it to severely pay down my car loan. If we do that, then after it’s paid off, I’ll redirect the money to the savings account as payment. With the Fed expected to cut down the interest rate within a month, paying debt seems to be the financially smart choice. This is by far my favorite account and we’re strict about the one way traffic: money only comes into it.

Mine:

• Local Credit Union Checking: (It’s so local, that if I mentioned it, you’d know where I live and I’m not cool with that.) I have my job direct deposit come into this account and then I transfer everything out from here. I’ve had good customer service from them in the past and a branch is only 5 minutes away from our apartment.
• Local Credit Union Savings: It’s slightly higher than average, but not by much. This is just a buffer if something is need for checking like extra gas money. This is the least active of my bank accounts.
• ING Savings: I have my emergency fund over at ING Direct to have it grow faster than it would in my credit union account.

His

• Wachovia Checking: It’s where he pays his bills like eating out, computer upgrades, gasoline, etc. I open the mail, so I have an idea of the balance and what not, but I kind of ignore this account. It’s his personal account, so what he does with it is fine by me for the most part. If he buys a flat panel TV from this account great, if it came from the joint, then I’d be concerned.
• Wachovia Savings: Same as above. I have a general idea of what he has, but I don’t stress over it. He’s an adult and he’s financially responsible.

How We Budget:

I think the key for us is keeping it easy to use and easy to change. We use a Google Spreadsheet for our joint budgeting. It lists our deposits and expenses for the month. We also add a buffer in case we go over. Using Google for our spreadsheet is great as we share the spreadsheet and it notifies the other of changes. We review this on an as needed basis, if someone gets a raise or works more hours, etc. To determine how much each deposits, we go by monthly income and come up with a percentage and then use that to calculate deposits. Here’s an example:

• Person 1: $5000/month
• Person 2: $3000month
• Total Income:  $8000
• Bills: $6000/month

• Person 1 brings in 62.5% of the income. That’s 5000/8000.
• Person 2 brings in 37.5% of the income. That’s 3000/8000.

So here are the deposits:

• Person 1 deposits $3,750. That’s just multiplying the bills by 62.5%
• Person 2 deposits $2250. “”

It is a system that is a bit more fair then just splitting it 50/50. People do it differently. This is what works for us,so we’ll continue with it for now. Any other ways of managing deposits that you found work?

As for my personal accounts, I use spreadsheets mainly and I’m trying out Wesabe’s community feature and using Mint to keep track of my eating out spending (I’m trying to be more efficient in this area).

My husband has spreadsheets and GnuCash. He likes it (I thinkJ, I’m not a mind reader, I just see him using it). I find if you do what works for you, then it actually sticks. I don’t like to use GnuCash, but I’m addicted to spreadsheets.

Our bills are automated with the exception of the cell phone bill, which will change next month. When a bill is off, like when our power bill was higher than normal, I just log in and change the amount. It takes less than 5 minutes. We like our little system and it’s working for us. It’s by now means perfect, but perfection is the enemy of good. It’s better to do something and then improve it bit by bit. How do you set up your account? Any tips, suggestions, thoughts?

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One of the biggest reasons marriages break down is money. Remember your marriage is more important than money. Use money as a way to bring you two closer, achieve dreams (like see the world or buy a home), and protect yourselves( have an emergency fund and  have wills ready). Money should work for you, don’t let it drive you two apart.
Some people mistakenly believe that if they brush over the topic, then they’ll avoid money arguments. That’s simply not true. It’s the lack of meaningful communication between spouses about finances that causes arguments.

Here’s some tips:

• Pick the right time. Having a financial conversation right after both of you get home is not the best time. Please also avoid conversations during favorite TV shows( My Monday nights are now open for discussion with the writer’s strike continuing.)
• Introduce your concern with politeness and respect. Money can be a delicate subject, as most of us building on what little foundation we learned from our parents.
• Try framing it as a ‘we’ issue.  It is easier to handle a situation when you’re both on the same page.
• Write down your priorities after you’ve made an agreement. This isn’t to be used to point out mistakes that will eventually be made. This is a reminder of a joint goal you both came up with.
• Celebrate the victories. When you achieved a goal, no matter how small, celebrate. A nice desert, a massage (my favorite),or a date with your spouse

Now that you have an idea of how you can tackle this conversation Let’s look at some possible topics (my feelings are the regular text):

• Decide on your long & short term financial goals. Don’t just assume that both of you want the same things. Talk about it and prioritize what is important. Having an emergency fund and buying our own place are our two goals right now. We have an emergency fund. We’re saving up bit by bit for the house. I might add if you two are thinking of having kids, talk about the financial implications. Would you do childcare? Who will stay at home with the kids? How will this affect your other goals?
• Divvy up financial responsibilities. Whoever is stronger in this area should handle it, but the other should be kept in the loop and understand how it works. I organize the joint account, but I let my husband know if something different is going on. He also checks the account from time to time.
• Be on the same page on bank accounts. Do you have joint, individual, or both kinds of accounts? Are you happy or is one upset over the arrangement.? We personally pay our bills from the joint, saving for the house jointly, and have leftovers in our individual accounts. That’s what works of us.
• Get your legal paperwork done. This is something we need to work on, as I know I haven’t updated my will since I gotten married. My husband is listed as beneficiary for my financial accounts. We need to get on the ball.

This is a huge topic that deserves more than one post and more than my small viewpoint, so here’s a few bloggers’ takes on it.

• Gather Little by Little Manage your finances together
• Being Frugal Do you know what today is?
• The Simple Dollar  Ten Financial Matters I Wish I Had Discussed With My Wife Before We Got Married
• Five Cent Nickel Crash Course in Estate Planning

Any advice that I missed (I know I did)? By the way, yes, I am cheesy; the picture is from our reception.