Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
The Corporate Debt Bubble Is Strikingly Similar to the Subprime Mortgage Bubble - 18th Feb 19
Stacking The Next QE On Top Of A $4 Trillion Fed Floor - 18th Feb 19
Get ready for the Stock Market Breakout Pattern Setup II - 18th Feb 19
It's Blue Skies For The Stock Market As Far As The Eye Can See - 18th Feb 19
Stock Market Correction is Due - 18th Feb 19
Iran's Death Spiral -- 40 Years And Counting - 17 Feb 19
Venezuela's Opposition Is Playing With Fire - 17 Feb 19
Fed Chairman Deceives; Precious Metals Mine Supply Threatened - 17 Feb 19
After 8 Terrific Weeks for Stocks, What’s Next? - 16th Feb 19
My Favorite Real Estate Strategies: Rent to Live, Buy to Rent - 16th Feb 19
Schumer & Sanders Want One Thing: Your Money - 16th Feb 19
What Could Happen When the Stock Markets Correct Next - 16th Feb 19
Bitcoin Your Best Opportunity Outside of Stocks - 16th Feb 19
Olympus TG-5 Tough Camera Under SEA Water Test - 16th Feb 19
"Mi Amigo" Sheffield Bomber Crash Memorial Site Fly-past on 22nd February 2019 VR360 - 16th Feb 19
Plunging Inventories have Zinc Bulls Ready to Run - 15th Feb 19
Gold Stocks Mega Mergers Are Bad for Shareholders - 15th Feb 19
Retail Sales Crash! It’s 2008 All Over Again for Stock Market and Economy! - 15th Feb 19
Is Gold Market 2019 Like 2016? - 15th Feb 19
Virgin Media's Increasingly Unreliable Broadband Service - 15th Feb 19
2019 Starting to Shine But is it a Long Con for Stock Investors? - 15th Feb 19
Gold is on the Verge of a Bull-run and Here's Why - 15th Feb 19
Will Stock Market 2019 be like 1999? - 14th Feb 19
3 Charts That Scream “Don’t Buy Stocks” - 14th Feb 19
Capitalism Isn’t Bad, It’s Just Broken - 14th Feb 19
How To Find High-Yield Dividend Stocks That Are Safe - 14th Feb 19
Strategy Session - How This Stocks Bear Market Fits in With Markets of the Past - 14th Feb 19
Marijuana Stocks Ready for Another Massive Rally? - 14th Feb 19
Wage Day Advance And Why There is No Shame About It - 14th Feb 19
Will 2019 be the Year of the Big Breakout for Gold? - 13th Feb 19
Earth Overshoot Day Illustrates We are the Lemmings - 13th Feb 19
A Stock Market Rally With No Pullbacks. What’s Next for Stocks - 13th Feb 19
Where Is Gold’s Rally in Response to USD Weakness? - 13th Feb 19

Market Oracle FREE Newsletter

The Real Secret for Successful Trading

Wall Street Veteran: Why I Don’t Lend to Family and Friends

Personal_Finance / Debt & Loans Nov 10, 2018 - 05:16 PM GMT

By: Jared_Dillian

Personal_Finance Once in a while, friends or family want to borrow money. How should you handle this?

Be careful.

Over the years, a hundred people asked me to borrow money from fifty bucks to tens of thousands. I have granted only two requests.

A lot of ill feelings will come up over borrowed money that isn’t paid back. It destroys relationships. Happens all the time.


The Answer Is No

The answer to the question “Can I borrow money?” should pretty much always be no. There are a couple of situations in which the answer is yes.
  1. The amount is small enough that non-repayment would not change the relationship.

That number will vary from person to person.

Some people will not miss a couple of thousand bucks. Some people will get p----d over getting stiffed on fifty. Totally depends.

Here is the key: If you loan money to a friend or a family member, you should write it to zero right away.

You should assume you will not be repaid. You should assume the loan is a gift. You should assume you will never see that money again.

If you are okay with never seeing the money again—I mean really deep down, you won’t miss it, and you are 100% certain it won’t change the relationship—then go ahead and do it.

This is the primary reason I never loan money. Not because I am a saver, but because it inevitably destroys relationships.

And here’s the thing: Even if I’m not weird about it, the borrower might be weird about it. He will be weird about it if he can’t pay you back. He will avoid you like the plague.

So in general, never do it.

But every rule is meant to be broken. And if you do it:

  1. Charge interest.

Charge a lot of interest. This person is asking to borrow money because he has exhausted all other options. Bank account is empty. Credit cards are maxed out. He has turned over every rock and you are his last resort.

Jack him up. Charge him 100% annual interest or more.

First, it’s common sense.

If commercial lenders think he’s a bad credit risk, then he deserves higher interest rates. Payday lenders and title lenders often charge triple-digit interest rates. You should do the same.

If you’re doing something really stupid, you might as well make some money doing it.

If credit is not available, then the price of it doesn’t really matter.

Are you morally hesitant to charge interest to friends and family? This is America. We believe in the time value of money here. Don’t be medieval.

The general principle here is:

a. Assume it’s a gift.

b. But pretend that it’s not.

If You Get Stiffed

The time to get paid back has come and gone, but you never got your money. How do you handle it? Do you blow up the guy’s phone? Hire a private investigator?

You can bet your ass he knows he owes you money. He knows where to find you.

Let it go.

If you had followed step one, you already would have written it to zero. So there would be no need to release the hounds.

But even if you write it to zero, you both know there is a debt outstanding.

In fact, I have an easier time loaning out large amounts of money than small amounts of money. I have no time for the guys who want to bum fifty bucks off you and then “forget.” Oh geez, it slipped my mind.

That brings us to rule number three. It is also a general life principle of mine.

  1. There is no charity—only investment.

A few weeks ago, I talked about giving to charity. Even though I give to charity, I don’t really believe that I’m giving to charity. I believe that I am investing.

When you give to charity, you expect nothing in return. When you invest, you expect something in return.

That something might be a psychic reward. In my case, that was the thought that I saved the lives of a few cats. That is an investment.

Or seeing your down-on-his-luck friend recover from his bad luck and have a fulfilling life. Also an investment. Deep down, I think you know the difference between charity and investment.

So I don’t give. I invest.

Which is the primary reason I’m 2-for-100 on lending money. I don’t believe many people are very good investments. If someone is a good investment, he’ll show you his virtues, not flaws.

He’ll say, “You should invest in me because I’m great and you’ll get your money back.” Not, “I’m down on my luck and I’m a loser.”

Pretend you are a capitalist (which you are). Invest in this guy.

Where most people typically go wrong is that they loan money when in reality it is charity. And then they expect something in return. That’s where the resentment comes in.

Grab Jared Dillian’s Exclusive Special Report, Investing in the Age of the Everything Bubble

As a Wall Street veteran and former Lehman Brothers head of ETF trading, Jared Dillian has traded through two bear markets.

Now, he’s staking his reputation on a call that a downturn is coming. And soon.

In this special report, you will learn how to properly position your portfolio for the coming bloodbath. Claim your FREE copy now.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules