Here's Why Friendship and Money Don't Mix

01/05/2016 05:02 pm ET Updated Jan 05, 2017

If you clicked on the link to read this article, I'm guessing you've either a) loaned a friend money, b) are thinking about loaning a friend money or c) are thinking about asking a friend for money.

Warning: you probably won't like what I have to say in the following paragraphs, but you should stick around to hear me out.

In my opinion (and admittedly limited experience) there is no faster way to strain a friendship than by introducing money into the mix.  Here's why:

Once you either give (or take) money from a friend the relationship transforms. You're no longer BFFs, confidants and bosom pals. Once money changes hands your relationship becomes strictly business, like the relationship between a bank and a borrower. Few relationships have a strong enough blueprint to handle such a dramatic and stressful shift. What happens if they can't pay you back? What happens if you know your friend isn't super creditworthy but you feel obligated to lend them money because of your attachment?

Yikes. Double Yikes.

Maybe you don't lend money but instead lend time or other resources like a place to crash. Once you become a lender (or lendee) this new relationship model opens up lines of inquiry into you or your friend's personal finances, and you won't be able to keep from noticing other money behaviors. Which is exactly what happened to me the first time I mixed friendship and finance.

The short story: a friend of mine needed a place to stay and was crashing on my couch to save up money for an apartment in the city (I had done this and wanted to pay it forward, and I also truly adored this person's friendship and liked having them around. I thought having them crash with me in my studio apartment meant slumber parties every night.

Except instead of saving, said person kept buying things off the internet. This was right as I was getting my financial act together after years of being a financial mess, so I was admittedly a little too self-righteous at that point. I completely mishandled the situation by confronting the person and expressing how rude I thought it was they were staying on my couch for free while constantly buying things online.

It came off that I was insulted they were indulging in such behavior under "my roof" when in reality I was concerned about them meeting a goal they'd said was important to them. We didn't get into a big fight, but our relationship was tense and odd afterward. It wasn't long before they eventually moved out and we haven't really kept in touch. Even today, it makes me super sad to think about the dissolution of our close friendship, but it taught me a valuable lesson about keeping my mouth shut when it comes to other's money decisions.

I'm using a personal example to illustrate my point: once money gets involved new behaviors, very personal behaviors like how someone spends their time and money become apparent to both parties. Knowing about these behaviors isn't good for either side of the relationship. And it's not like the person asking you for money is going to have absolutely perfect finances, if they did, they wouldn't need to ask, would they?

The friend asking you for money has likely hit on hard times (it takes a lot of humility to ask others for help, especially when it comes to money), but they're asking you because they likely can't get the funds from somewhere else (parents, banks, peer-to-peer lending platforms, crowdfunding.) Maybe it's bad luck, but maybe they also didn't prepare with an emergency fund. Do you think they'll get their act together enough to pay you back?

Maybe. Perhaps. But until then it's going to be very, very awkward.

Other Times Money and Friendship Don't Mix

Friends lending friends money is one extreme, but there are other money situations that can play out in our personal relationships. It can be a small instance like splitting a group check when you're on a budget and your friends want to act like it's bacchanal, to the larger ones like spending more on a group vacation than you're comfortable with. My only advice is to speak up, otherwise a seed of resentment will start to grow inside of you. And whether you realize it or not, everyone acts weird with a seed of resentment inside of them.

Those are situations that can be rectified with a little clarity and preplanning. Unfortunately, I can't help when it comes to cases of jealousy, and yes, money jealousy can ruin friendships too. But in that instance if a friend can't celebrate your success, perhaps you're better off leaving them behind.

Gift, Don't Lend

The premise of this piece is to help those who want to navigate money issues while keeping their relationships in tact. If you're a Scrooge McDuck and want to loan friends money and charge interest while wheeling and dealing, be my guest. But you've been warned that this approach may leave you wealthy and alone.

The purpose of this piece also isn't to say you shouldn't help a friend in need, or share your resources with the people you care about. After all, you work hard. Why have that money if not to help out a loved one? Still, it's worth repeating that you are not a bank. Your friends? Also not banks.

I fully stand by my opinion that money and friendship don't mix.

Gifts, however, fit wonderfully within any relationship.

Which is why my advice to those staring down the "loaning a loved one" money gauntlet is to gift a certain amount you feel comfortable losing, whether it's $10, $50, $100 or more--whatever feels most comfortable to you. Gift that money to a friend without the expectation of getting it back. They'll, of course, verbally promise to pay you back, so smile and nod politely, but in your own heart and mind you should consider the money gone. Don't write it down anywhere. I promise you'll save so much resentment that way and it will feel really good to do something nice for someone.

Even if someone doesn't ask you specifically for money with the gift approach you can offer to help financially, which could also help save a lot of "face" within the relationship as well.

Most families already take the gift. vs. lend approach to keep the peace, which is why I believe most folks in need of money turn to family first (if they can.) Yes, "blood is thicker than water," but most families operate with the "what's good for you is good for me" mindset. You need money? You take it. I don't get it back now? That's fine. There may be a point down the road where I need you to help me. And while there are many stories of families ruined by money and estate disputes every day, most family members aren't going to disown you over a small amount.

So, treat your friends like family. Gift rather than lend money. If they happen to come through and pay you back in full, it will be a nice surprise and you'll have your cash back. If not, you didn't expect it anyways. Low expectations for the win!

Have you ever borrowed money from a friend or lent money to a friend? How did it work out for you? What are your "money lending rules" when it comes to friends and family?