Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Bitcoin Price 2019 Trend Current State - 18th Sep 19
No More Realtors… These Start-ups Will Buy Your House in Less than 20 Days - 18th Sep 19
Gold Bugs And Manipulation Theorists Unite – Another “Manipulation” Indictment - 18th Sep 19
Central Bankers' Desperate Grab for Power - 18th Sep 19
Oil Shock! Will War Drums, Inflation Fears Ignite Gold and Silver Markets? - 18th Sep 19
Importance Of Internal Rate Of Return For A Business - 18th Sep 19
Gold Bull Market Ultimate Upside Target - 17th Sep 19
Gold Spikes on the Saudi Oil Attacks: Can It Last? - 17th Sep 19
Stock Market VIX To Begin A New Uptrend and What it Means - 17th Sep 19
Philippines, China and US: Joint Exploration Vs Rearmament and Nuclear Weapons - 17th Sep 19
What Are The Real Upside Targets For Crude Oil Price Post Drone Attack? - 17th Sep 19
Curse of Technology Weapons - 17th Sep 19
Media Hypes Recession Whilst Trump Proposes a Tax on Savings - 17th Sep 19
Understanding Ways To Stretch Your Investments Further - 17th Sep 19
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19
Boris Johnson's "Do or Die, Dead in a Ditch" Brexit Strategy - 11th Sep 19
Precious Metals, US Dollar: How It All Relates – Part I - 11th Sep 19
Bank of England’s Carney Delivers Dollar Shocker at Jackson Hole meeting - 11th Sep 19
Gold and Silver Wounded Animals, Indeed - 11th Sep 19
Boris Johnson a Crippled Prime Minister - 11th Sep 19
Gold Significant Correction Has Started - 11th Sep 19
Reasons To Follow Experienced Traders In Automated Trading - 11th Sep 19
Silver's Sharp Reaction Back - 11th Sep 19
2020 Will Be the Most Volatile Market Year in History - 11th Sep 19
Westminister BrExit Extreme Chaos Puts Britain into a Pre-Civil War State - 10th Sep 19
Gold to Correct as Stocks Rally - 10th Sep 19
Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - 10th Sep 19
Stock Market Sector Rotation Giving Mixed Signals About The Future - 10th Sep 19
The Online Gaming Industry is Going Up - 10th Sep 19

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

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