Financial Policy: Create Your “No” Policies Before You Need Them

Creating a Financial Policy

Some friends recently dropped by “to talk”. Once the iced tea was served and the four of us were comfortably seated around the dining room table, I turned to Dave (fictional name) and asked, “So tell me. What’s going on?”

Dave said, “You know we have been on the waiting list to move into that rental complex. We have some good news…our name is at the top of the list. We met with the property manager today and he told us that the unit is ours if we have someone sign as a reference.” Dave handed me the paper. “Would you be able to sign this?”

More than a reference

It all sounded innocuous enough, but as I scrutinized the document, I was pretty sure that Dave and his wife didn’t really know what it was. Looking up, I asked Dave, “Do you understand what this is?”

“Well, not really.”

“The owners of the rental complex want assurance that they will be paid, so they are asking someone to co-sign the agreement. That way, if you aren’t able to make a payment, they have someone else to get the money from. I hate to disappoint you, but we have a policy: we don’t co-sign agreements for anyone.”

Dave seemed to understand. “I wouldn’t want you to do anything you don’t think you should. Thanks anyway.”

A financial policy can help awkward situations be less awkward

Because my wife and I had previously discussed the issue of co-signing, we had a ready answer for Dave and his wife, making our “no” an easy one. If we had not thought this through ahead of time, we would have found ourselves trying to trying to formulate our response with Dave and his wife in the room. That could have been awkward.

This post is not on the pros and cons of co-signing; it is about thinking through such issues ahead of time and creating a clear stance. Doing so makes saying “no” much easier and even graceful. Dave and his wife did not feel that our decision had anything to do with them personally. After all, we don’t co-sign for anyone.

What are some other financial policies that are good to think about ahead of time?

• Will you loan money to anyone? If not, why not? If so, under what circumstances?

• Will you loan non monetary items (car, golf clubs, etc) to anyone?

• Under what circumstances will you give money to an individual?

• Would such a gift be different with a family member than a non family member?

You get the idea. Forming a policy ahead of time not only forces you to think through an issue, but gives you a clear and united response when you need it. If you don’t have such policies, consider setting them now, before you need them.

What other financial (or non-financial) issues have you established policies for? How are they working?