To track money lent to family or friends, whether by bank transfer in the UAE or by remittance abroad, move it into an account called “Owed to me” instead of a spending category. Repayments come back the same way, so neither spending nor income moves until a decision is made to write the balance off.
Last week I found AED 3,300 in my tracker filed wrongly. Not stolen, not spent. Lent. AED 3,000 to a colleague in March for a school fee, AED 1,500 to a cousin in June, AED 800 to a friend in September. All three sat in “Other”, and the repayments sat in income. Both entries were wrong, in opposite directions.
Is money you lend to a friend an expense?
No. On the day the AED 3,000 left my account, I consumed nothing. I swapped AED 3,000 in the bank for a promise of AED 3,000 later. My net worth did not move.
Recording it as an expense breaks two periods at once. March looked AED 3,000 more expensive than it was. Then from April the colleague paid back AED 500 a month, and four repayments added AED 2,000 of “income” I never earned. Spending too high in one month and income too high in the next four is not a budget anyone can steer by.
The fix is one account per borrower: a balance, not a category. It is the same control test I use for money sent home: money that will come back is owed, not spent.
How to record a personal loan in a budget, step by step
- Create an account called “Owed to me: [name]”. It is an asset, like a savings account, except someone else is holding the money.
- Record the money going out as a transfer from the bank account into that account. Spending is untouched.
- Record every repayment as a transfer back. The AED 500 instalments reduce the “Owed to me” balance and raise the bank balance. Income is untouched.
- Repayments in kind count too. If a borrower pays for a AED 60 lunch and says “take it off what I owe”, that is two lines: a AED 60 repayment and a AED 60 dining expense, because the lunch was eaten.
- Write the evidence into the note field. The bank transfer reference, the date, and the date the person said they would pay. A Khaleej Times legal column on exactly this situation tells lenders, “You should retain all documents and evidence including relevant electronic communications such as any texts, SMS or email”. I keep it for memory more than for a courtroom.
Cash loans work the same way: ATM withdrawal to cash, then cash to “Owed to me”.
What if the loan is sent to family abroad?
Many loans leave the UAE through an exchange house or a bank’s remittance screen, and the receipt holds two numbers worth separating. The dirham amount that bought the rupees or pesos goes into “Owed to me”, on the day it left. The transfer fee goes on its own line as an expense, because the service was consumed and will not be repaid. The exchange margin stays buried inside the principal, which is why a loan repaid in another currency rarely brings back the same dirhams.
The test is whether the money is expected back. Support with no repayment expected is spending, and the remittance guide covers that case and the fee line in detail. If the relative repays in their own currency, record the dirhams that actually land, and treat any shortfall against the balance as a currency loss rather than an unpaid debt.
How the trading company where I work tracks money it is owed
The finance team where I work does not keep one number for “customers owe us”. It keeps an ageing report: every unpaid invoice sorted by how long it is past its due date. Current, more than 30 days, more than 60, more than 90. The older the bucket, the less the team counts on it.
Accounting standards formalise that instinct. In the IFRS Foundation’s illustrative provision matrix, a car maker expects to lose 0.10% of current dealer balances, 2% of balances more than 30 days past due, 5% past 60 days and 13% past 90 days.
A loan to a friend does not make you poorer on the day it leaves. Forgiving it does, and that is the day to record it.
Here is my October ageing, measured from the date each person said they would pay:
| Borrower | Lent | Repaid | Still owed | Oldest unpaid due date | Bucket on 7 Oct |
|---|---|---|---|---|---|
| Colleague | AED 3,000 (March) | AED 2,000 (Apr to Jul) | AED 1,000 | 31 August | More than 30 days |
| Cousin | AED 1,500 (June) | Nothing | AED 1,500 | 2 July | More than 90 days |
| Friend | AED 800 (September) | Not due yet | AED 800 | 31 October | Current |
| Total | AED 3,300 |
Run the IFRS rates over that table and the expected loss is AED 215.80: AED 20 on the colleague, AED 195 on the cousin, 80 fils on the friend. That number is wrong for a person. The company’s percentages come from thousands of customers, so 13% of old balances really does go missing on average. I have three borrowers. The cousin will not repay 87% of AED 1,500. The cousin will repay all of it or none of it.
So I keep the buckets and drop the percentages. The ageing tells me which conversation is overdue. It does not pretend to know how that conversation ends.
When should you write off money lent to a friend?
When I lend, I set a review date: the promised repayment date plus 90 days. On that date one of three things gets recorded.
- A new plan. If the person agrees new dates, the balance stays where it is and the due date in the note moves. Nothing hits spending.
- A partial write-off. If the agreement is “pay AED 1,000 and forget the rest”, the forgiven AED 500 becomes an expense in the current month, in a category like “Gifts and family support”.
- A full write-off. The whole remaining balance moves from “Owed to me” into that same expense category, this month.
The cousin’s review date is 30 September, so this month I made the call. AED 1,500 went into October’s spending as family support, and my net worth fell by AED 1,500 in October. It did not fall in June, when the money left, because in June I still expected it back. Recording the cost in the month of the decision puts it next to the reason.
The quiet mistake is never writing it off. A AED 1,500 “Owed to me” balance that has not moved in two years is not an asset. It flatters net worth and every savings figure. The finance team where I work clears dead balances at year-end for that reason, and a personal tracker deserves the same date.
None of this makes lending a worse idea. In this region money moves between colleagues, cousins and friends all the time, mostly unwritten. Tracking it as a balance just means the tracker stays honest while it is out, and letting it go becomes a decision made on purpose, on a date, rather than by drift.