Money Manners: Common Questions Answered

April 10, 2008 — -- What should I do if I borrow an item and either ruin it or return it damaged?

As the borrower, you absolutely should feel obligated to return the item in the same condition in which you received it. If something happens, you should offer to replace the item or if possible, have it repaired. Not all borrowers recognize that damage has been done. When this happens, you need to determine how valuable the item is to you — is it worth pointing out the issue to your friend? Are they in a financial position to replace the item?

That said, my advice is to think through these issues before you loan an item. You also may want to consider whether your friend tends to be responsible with their own things as well as the property of others. Just remember, you are not required to lend your possessions to others — however, reciprocity does come into play sometimes, so if you are not comfortable lending items to certain people, do not expect these same people to lend you their things.

Financial loans to family and friends can be tricky. What is the best approach, especially for those who find themselves in the role of lender?

When asked for a loan, first and foremost, figure out if you can comfortably afford to part with the money. You should also think about how you would feel if the money was not repaid — could you move on and consider it a gift?

If you decide to move forward, communication and documentation are essential. Although a smaller loan may only require a handshake, loans of larger amounts should be documented in writing. A "larger" loan is any amount that is substantial to you, whether it is $1,000 or $15,000. Once the terms of the loan have been agreed upon, do not hang the loan over the borrower's head and avoid meddling in their financial affairs. If they are holding up to their end of the bargain, do not offer unsolicited advice as it can put a strain on the relationship.

Drafting a loan agreement sounds complicated. Would you need to consult with a lawyer?

Not necessarily. Actually, a loan agreement can be fairly simple. It should capture the names of the lender and the borrower; the date of the loan; the amount of the loan; the interest rate, if applicable; the period over which the loan will be repaid; the amount of each payment; and the frequency of payments — and both parties should sign this document to reflect agreement on the terms.

Keep in mind, though, if the loan is for a large amount of money, there could be tax implications so you may want to consider professional advice.

What if you decide against loaning money to a family member or friend? How can you tell them "no"?

If you are financially unable or just too uncomfortable to lend the money, it is important to be honest. If you lend money to someone who does not have the ability to repay you, it would be far worse to have to hound them for the money than it would be to say "no" from the start.

Although you may say "no" to the loan, you could offer to help them explore other options for getting the money they need.

So how about mealtime math — how do you handle a restaurant bill among friends, especially friends with varying incomes?

Start by choosing a restaurant that is affordable for everyone. Then, if each person's expenses end up being fairly even, you can split the bill equally and agree to a tip amount.

But, as we all know, the tricky part is when people order items with vastly different costs. Or, when one item — like a bottle of wine or an appetizer — is shared by only some. Regardless of the situation, as a general rule of thumb, expect to pay for what you ordered and enjoyed.

To ensure clarity among the group, if you want to order an item to share, throw out the idea before ordering and see who else is interested — and then those individuals should be responsible for covering the costs.

If you find yourself in a situation where you are being asked to pay an amount way above what you actually ordered, there is no harm (or shame) in suggesting that the bill be split more or less according to each person's order. Finally, when paying for your portion of the bill, come prepared to use cash. The last thing you want to do is wrack up credit card debt by dining out.