Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24
How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - 17th Feb 24
Why Rising Shipping Costs Won't Cause Inflation - 17th Feb 24
Intensive 6 Week Stock Market Elliott Wave Training Course - 17th Feb 24
INFLATION and the Stock Market Trend - 17th Feb 24
GameStop (GME): 88% Shellacking Yet No Lesson Learned - 17th Feb 24
Nick Millican Explains Real Estate Investment in a Changing World - 17th Feb 24
US Stock Market Addicted to Deficit Spending - 7th Feb 24
Stocks Bull Market Commands It All For Now - 7th Feb 24
Financial Markets Narrative Nonsense - 7th Feb 24
Gold Price Long-Term Outlook Could Not Look Better - 7th Feb 24
Stock Market QE4EVER - 7th Feb 24
Learn How to Accumulate and Distribute (Trim) Stock Positions to Maximise Profits - Investing 101 - 5th Feb 24
US Exponential Budget Deficit - 5th Feb 24
Gold Tipping Points That Investors Shouldn’t Miss - 5th Feb 24
Banking Crisis Quietly Brewing - 5th Feb 24
Stock Market Major Market lows by Calendar Month - 4th Feb 24
Gold Price’s Rally is Normal, but Is It Really Bullish? - 4th Feb 24
More Problems in US Regional Banking System: Where There's Fire There's Smoke - 4th Feb 24
New Hints of US Election Year Market Interventions & Turmoil - 4th Feb 24
Watch Consumer Spending to Know When the Fed Will Cut Interest Rates - 4th Feb 24
STOCK MARKET DISCOUNTING EVENTS BIG PICTURE - 31st Jan 24
Blue Skies Ahead As Stock Market Is Expected To Continue Much Higher - 31st Jan 24
What the Stock Market "Fear Index" VIX May Be Signaling - 31st Jan 24
Stock Market Trend Forecast Review - 31st Jan 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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.


© 2005-2022 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