True life story: Two ladies have been friends for some years. They both end up working in the same company and are on the same level, so they earn roughly the same amount of money. Friend A (let’s call her Jane) asks friend B (let’s call her Anne) to act as her guarantor for a loan she’s taking from the company. Anne says sure, no problem, fills the form and Jane gets her loan. Jane then gets an offer from another company paying even more money, she takes the offer and leaves, but she’s paying off the loan so no issues. Unfortunately, Jane loses her job and is unable to continue servicing the loan. Now Anne has to pay the balance because she’s the guarantor. Jane doesn’t understand why Anne is upset with her, after all, it’s not her fault she lost her job, plus she’d promised Anne she would pay the outstanding once she was able to get back on her feet.
The monthly payments Anne’s making have affected her ability to save up for the postgraduate program she wanted to take to improve her job prospects. Needless to say, their relationship is now strained by something which seemed so simple in the beginning but has become complicated.
Truth is this happens (in some shape or form) more often than you may realise – between colleagues, friends, siblings, spouses. Don’t underestimate the impact getting into a financial arrangement with someone you’re in a relationship with can have on you and your relationships. Many principles can help you navigate finances when it comes to your relationships and I have highlighted 6 below:
1. Determine ahead of time what you are willing to let go of: When the discussion on finances comes up (whether it’s a loan, investment or other types of financing arrangement) you need to know upfront what you’re willing to let go of should things go wrong. Are you willing to walk away from the relationship? Or are you willing to forego all or some level of loss that may arise and preserve your relationship?
2. Talk about it: Once you’ve determined your position, open the discussion on your limits and boundaries of your finances. Talk it through so the other party understands your expectations. Also, ensure you understand the other party’s expectations also. For people in relationships that require constant mingling of finances such as a marriage, schedule regular time to go over your finances together to make sure you’re both constantly aligned.
3. Be objective and park the emotions: Finance talks are not about emotions so try not to bring them to the table during these discussions. Look at the facts and work with what is realistic so you’re not clouding your judgement with sentiments. If someone with no ability to repay you in the near term has a pressing need you feel you must support then do so with an amount you can afford without going back to push for a repayment.
- Have a clear repayment plan for loans: Your good friend wants to borrow N100k but only makes N50k a month. She needs to tell you specifically how she intends to pay back and put a plan in place. Or perhaps you want to borrow N200k from your brother. As you’re making your request you should also be providing him with a specific repayment plan. Agreement upfront is essential to managing expectations and preserving your relationship. “I will pay you when I can” is not a payment plan.
5. Understand what you’re investing in: It’s critical that you also understand whatever investment opportunities you’re presented with so you know what you’re getting yourself into. Your spouse brings an investment opportunity that should yield decent returns, however, it will take a year or two to reap the benefits. How much research has been done on this opportunity and how realistic are the expected returns? How does that align with your current family priorities? How much can you afford to release without damaging your short to medium-term goals? You need to answer these questions before diving in.
- Transparency is critical: Were there a joint fund involved, transparency becomes quite important. If I’m investing in a business idea, how do I see what is coming in and going out of the account? Will I be a signatory to the account or will I be receiving regular updates on the status of the investment and over what period?
Now if you’re married, there’s a lot more personal involvement in financial decisions you make as a family. Here are 4 things to keep in mind:
- Agree and align on what is important: People in a relationship have to align on what is important to them per time. What are your short, medium and long term goals? Are you paying off a loan? Saving up for a house or paying fees? You have to be aligned on what is important per time so that you can both align on your spending.
- Have a budget and determine responsibilities: Always prepare a budget together and discuss how to allocate the money coming in. A budget helps align your financial goals for the period. Once these goals are determined, then clarify the responsibilities: jointly agree who is responsible for what to create clear lines of accountability. For example, you may handle monthly cable charges while your partner handles monthly internet charges.
- Joint Account or Separate Accounts: This is subject to personal preference; you can either have a joint account, separate accounts or both. Couples can have joint accounts if it works best for them or separate accounts, but what is important is having honest open conversations about what is important per time and the boundaries established.
- Embrace your differences: It is okay if you and your partner have different personalities and spending habits. A money spender and a saver can help balance out each other’s excesses and ensure a balanced lifestyle. Do what works for you as a unit. At the end of the day, you have the most knowledge about those in your life; you have the insight to make the decision that works best for you.
These are just a few principles to help guide you as you navigate finances in your relationships.