Best of the Week
Most Popular
1. Ray Dalio: This Debt Cycle Will End Soon - John_Mauldin
2.Stock Market Dow Plunge Following Fake US - China Trade War Truce - Nadeem_Walayat
3.UK House Prices 2019 No Deal BrExit 30% Crash Warning! - Nadeem_Walayat
4.What the Oil Short-sellers and OPEC Don’t Know about Peak Shale - Andrew_Butter
5.Stock Market Crashed While the Yield Curve Inverted - Troy_Bombardia
6.More Late-cycle Signs for the Stock Market and What’s Next - Troy_Bombardia
7.US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - Troy_Bombardia
8.TICK TOCK, Counting Down to the Next Recession - James_Quinn
9.How Theresa May Put Britain on the Path Towards BrExit Civil War - Nadeem_Walayat
10.This Is the End of Trump’s Economic Sugar High - Patrick_Watson
Last 7 days
The stock market fails to rally each day. What’s next for stocks - 14th Dec 18
How Low Could the S&P 500 Go? - 14th Dec 18
An Industrial to Stock Trade: Is Boeing a BUY Here? - 14th Dec 18
Will the Arrest of Huawei Executive Derail Trade War Truce? - 14th Dec 18
Trump vs the Fed: Who Wins? - 13th Dec 18
Expect Gold & Silver to Pullback Before the Next Move Higher - 13th Dec 18
Dollar Index Trends, USDJPY Setting Up - 13th Dec 18
While The Stocks Bulls Fiddle With The 'Fundamentals,' Rome Burns - 13th Dec 18
The Historic Role of Silver - 13th Dec 18
Natural Gas Price Setup for a Big Move Lower - 13th Dec 18
How to Get 20% Off Morrisons Weekly Supermarket Shopping - 13th Dec 18
Gold Price Analysis: Closer To A Significant Monetary Event - 13th Dec 18
Where is the Stock Market Santa Claus Rally? - 12th Dec 18
Politics and Economics in Times of Crisis - 12th Dec 18
Owning Precious Metals in an IRA - 12th Dec 18
Ways to Improve the Value of Your Home - 12th Dec 18
Theresa May No Confidence Vote, Next Tory Leader Betting Market Analysis and Forecasts - 12th Dec 18
Gold & Global Financial Crisis Redux - 12th Dec 18
Wow Your Neighbours With the Best Christmas Projector Lights for Holidays 2018! - 12th Dec 18
Stock Market Topping Formation as Risks Rise Around the World - 11th Dec 18
The Amazing Story of Gold to Gold Stocks Ratios - 11th Dec 18
Stock Market Medium term Bullish, But Long Term Risk:Reward is Bearish - 11th Dec 18
Is a Deleveraging Event about to Unfold in the Stock Market? - 11th Dec 18
Making Money through Property Investment - 11th Dec 18
Brexit: What Will it Mean for Exchange Rates? - 11th Dec 18
United States Facing Climate Change Severe Water Stress - 10th Dec 18
Waiting for Gold Price to Erupt - 10th Dec 18
Stock Market Key Support Being Re-Tested - 10th Dec 18
May BrExit Deal Tory MP Votes Forecast, Betting Market Analysis - 10th Dec 18
Listen to What Gold is Telling You - 10th Dec 18
The Stock Market’s Long Term Outlook is Changing - 10th Dec 18
Palladium Shortages Expose Broken Futures Markets for Precious Metals - 9th Dec 18
Is an Inverted Yield Curve Bullish for Gold? - 9th Dec 18
Rising US Home Prices and Falling Sales - 8th Dec 18
Choosing Who the Autonomous Car Should Kill - 8th Dec 18
Stocks Selloff Boosting Gold - 8th Dec 18

Market Oracle FREE Newsletter

How You Could Make £2,850 Per Month

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.


© 2005-2018 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