Friday, July 25, 2008

Real Friends Loan Money (and other myths)

Real Friends Loan Money (and other myths)

Drs. Cynthia Crawford[i] and Robert O. Weagley

You may have heard some horror stories about college roommates. Most of them are true. One way to reduce the trauma from this stage in your life is to have some agreements with your roommates, from the beginning.

One of the first topics to agree on is how you’ll share costs of things you might need for your room (for example the cost of a dorm refrigerator and stocking it with snacks) and whether you will lend money to each other. The National Endowment for Financial Education (NEFE) recommends that you have a policy of not lending money to your roommate or anyone else who goes to school with you. This is the only way you will avoid hard feelings, when you do not get repaid. A big caution is to never leave your debit card or credit card laying around the dorm room or apartment. No matter who uses it, you’ll be the one receiving the bill. (It is a great idea to read your statements (DUH!), either on-line or in hard copy, to make sure you are paying for only those items that you purchased. If there is a charge you are not certain of having made, contact the debit/credit card company.)

These ideas go double when you are sharing an apartment with friends – who sometimes become ex-friends. Negotiate how (or, if) you will share the costs of utilities, internet services, newspapers, and basics like food. Will you shop together and split the food bill or will each of you buy your own food? What if one person likes a toasty warm apartment in the winter and the other would rather dial the thermostat down and save money? What if one person damages the apartment and jeopardizes the security deposit for all? Talk about this at the beginning before there is a problem. Once the problem exists, it will be difficult to have the conversation and the conversation could turn ugly.

One thing that works for many students is to make a list of all agreed-upon common expenses. Then, each month have roommates keep the receipt for every common bill that they pay, sign it, and put it in the glass on top of the refrigerator. Then, when the monthly rent is due, calculate all that has been paid by each person and make adjustments to each person’s rent check to assure that each is paying their own way. (This worked great for Dr. Weagley when he was a roommate. He and his roommates actually included everything that they purchased, except for alcoholic beverages, and he did the calculations at the end of the month…as well as most of the cooking. His roommates, however, did all the dishwashing and cleaning, in repayment for his Hamburger Helper© induced culinary skills.)

What happens if a roommate moves out early? If a roommate moves out before the lease expires, the landlord likely can hold the remaining tenants on the lease responsible for the full amount of the rent. Do you think this can create hard feelings? When tenants sign a lease, generally each tenant agrees to be fully responsible for the rent. If a tenant moves out, the landlord often looks to the remaining tenant(s) for the rent because they are close at hand. They are the bird in hand. An option is to check to see if the landlord will allow individual leases for each resident. The downside, of course, is that the landlord can replace the tenant without your agreement – unless it is written otherwise into the rental contract.

Having a written roommate agreement, signed by all, is a great way to address all of these issues. In the agreement write out your agreed upon expectations for payments, cleaning, cooking, late night visitors, long-term visitors, etc. Don’t make it so stultifying that you remove all the fun form your college years but focus on those things that you’ve seen cause problems in your or others’ past.

Importantly, when leasing property, respect the property of the landlord. Treat it as if it were yours and always maintain a businesslike relationship with the owner of the property and/or her management representatives. How you begin your success in your financial life, as evidenced by how you treat others and the property of others, says a lot about how you will live when you’re the landlord and some person-to-be-named-later is your tenant


- Robert O. Weagley, Ph.D., CFP(r)

Chair, Personal Financial Planning

University of Missouri

Columbia, MO 65211

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