What Would I Do if I Fell On Hard Times (and Importantly How Would I Recover)

It’s been a surreal week.  Midway through it I received a phone call from a good friend who has just returned from the third family holiday of the year.  However this time instead of talk of how great the holiday was I was greeted with an “I'm in financial difficulty and could I borrow some money from you?”  A little clarification revealed we weren't talking about twenty quid until next payday but thousands of pounds.  I was dumbstruck.  Why?

My friend is intelligent, has a very similar educational background to my own and has been working a similar amount of time.  We have similar jobs, albeit at different companies, but I would guess our salaries are probably within 10% of each others.  We do however live very different lifestyles.  To give some examples:

• In my friend’s family only 1 of them works.  In my family 2 of us choose to work.  
• My friend’s family chooses to live in a lovely part of London in a very nice rented house.  I live with my family in a small rented flat in a less salubrious part of town which is actually perfectly adequate for or needs.
• That lovely house above is not well insulated and so already has the heating on where I'm still yet to even consider it.
• My friend’s family choose to holiday at least 3 times per year.  My family has a single holiday each year along with a family visit for Christmas.
• My friend’s family is always dressed like they've just walked off a catwalk.  My family while wearing clean, neatly pressed clothes are a little out of fashion and contain the odd darned sock.

I must be clear here.  I don’t begrudge my friend’s family any of the above.  Everyone in this world is entitled to live their own lives and make their own choices.  I've chosen to Save Hard, Invest Wisely and Retire Early which today means I have accrued 72% of the wealth I need to secure financial independence.  My friend’s family has chosen to live for today.  I’d never really thought about the differences between us previously but when you look at the differences above we are at very different stages in life and on a very different life path.  The now clear disparity in wealth really did bring the book The Millionaire Next Door by Thomas Stanley into the forefront of my mind.  The only difference is that I don’t have a million pounds nor do I think I will need that much for financial independence as I've found plenty of ways to live well while spending less.


Before I go on I also must emphasise that I believe my family and I are incredibly fortunate.  Sure we have our problems but they are nothing compared to some who have genuinely fallen on hard times.  Were my friend in that situation I wouldn't think twice about whether or not to lend the money.  I’d likely be giving it unconditionally with no repayment required if it could help recovery.  The problem is I believe my friend is like me also incredibly fortunate.

Over the past couple of days I've tried to put myself in my friend’s shoes in an attempt to try and understand how this situation has arisen so that I can try and help.  What would I have done?  I must say I'm struggling to understand this situation as it’s just so far from how I live but here goes.  I'm no longer living the Retirement Investing Today lifestyle and don’t even have an Emergency Fund in place.  I fall a little short in one month through an unplanned surprise and find that I have annual income of twenty pounds per annum but am spending twenty pounds and sixpence.  Provided my income was relatively secure (if it wasn't I’d probably be queuing at the Citizens Advice Bureau tomorrow) I’d probably apply for a personal loan or reach for my cash back credit card depending on how long I thought I would be in debt for and how quickly I needed to find the cash.  If I didn't have such a good credit record when I fell into this situation I’d likely be looking for a personal loan or reaching for my credit card for those with poor credit both of which will carry higher interest rates than a person with a good credit rating as I'm now a more risky borrower.

To now I think my friend and I are on the same path.  The next step is where we would however diverge greatly.  I’d be treating the situation as a family emergency! Sirens would be sounding, lights would be flashing and I honestly would not be sleeping until the problem had been solved and the money repaid.  As a family we’d be cutting costs and quick.  The method I developed previously would serve us well here however this time it would be A Method to Help Us All Save More Extreme.  In the short term any non-food, energy related or transport for work only purchase would be banned.  Good bye all holidays and any non-essential expenditure including that quick High Street snack would be banned.  The food purchases would be back to the very bare essentials that would keep us healthy.  The heating would also be off and multiple jumpers would be on.  Lights would also be used sparingly.  Any fun that costs money would be off limits.  I’d review transport to work costs to get them down at the expense of extended travel times.  A long term review of where we live and can we afford to stay would also be undertaken.  I’d also be looking for a weekend job to try and find some more short term money.  All of this would be used to pay off the debt in the shortest possible of time.  In parallel I’d also be trying to understand how it all went and implementing solutions to prevent it all happening again.

My friend has apparently done none of the above.  Apparently the problem has been building for some time resulting in significant debts including personal loans and credit cards.

Which brings me back to the question - “I'm in financial difficulty and could I borrow some money from you?”  I really do not know what to do as I can’t see any of my options ending well:

• Simply hand over the money.  Given that this has built up over time and involves multiple sources of credit I can’t help think that I'm just the next source of credit for somebody who hasn't accepted they have a problem.  Once that’s exhausted maybe some other friends and family will stump up.  This looks like a spiral which could even end with the disaster that is payday loans.  Every day that passes with no action really does make it more difficult to recover, with recovery also taking longer.  This route is easy for me and will keep the friendship, as I'm prepared to write the money off, but I can’t see how it helps my friend which is what I'm trying to do here.
• Hand over the money with conditions.  Those conditions would probably be along the lines that we agree to sit down together and work out a plan on how to recover the situation with that plan then being followed.  I fear this will result in a perception that I'm arrogant, self righteous and trying to control my friend’s life.  It might help solve the problem but I fear it is likely to destroy the friendship.  I just can’t see it ending well but it might actually be the right thing to do even if it does destroy the friendship.
• Don’t hand over the money allowing my friend to move on to the next credit source (if one exists).  I can’t see that ending well either as it probably won’t enable the problem to be solved and I’ll likely not be seen as a true friend thereby also destroying the friendship.

In summary I'm really not sure what to do next.  Have you been in this situation?  What did you do?  Even if you haven’t been in this situation as always I’d still appreciate your viewpoint.