The past year and this year have been filled with challenges in my life. If you’ve been coming to pursuitofexcellence.me, you’ve seen more posts concerning debt free me and articles I’ve found interesting. My source material for my blog posts is from the articles I read. I’m sharing this information so any visitor can read articles I’ve enjoyed at their convenience. Going forward, I’m going to post a blog reviewing an article or multiple articles as it happens, and the articles will be on a wide variety of topics and not focus strictly on finance at times.
Items in italics are direct quotes from the articles below
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 50 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. If you do loan money, charge a lot of interest. This person is asking to borrow money because he has exhausted all other options. 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.
It’s very important that if you are going to lend money to friends and family that there are 3 key points to keep in mind:
1. The amount is small enough that non-repayment would not change the relationship.
2. Charge interest.
3. There is no charity — only investment.
The first point is important, and the amount can vary from person to person. If you lend money you should write it to zero immediately. Assume the money is a gift and that you will never see it again. If lending the money won’t change the relationship, then it’s ok to do it. It will degrade the relationship if done over time again and again. 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. The second point is if you do lend money, then charge a lot of interest. The point is if a traditional lender will charge a higher interest if you’re a risk of not re-paying and payday lenders will charge as high as three hundred percent then you need to also, because it is about the time value of money. It’s about the opportunity cost of not being able to take that amount and use it for something else.
The general principle here is:
a. Assume it’s a gift.
b. But pretend that it’s not.
If you do end up in a non-repayment status, then internally let it go. Finally, when you lend money, understand that you are investing. You expect something in return, which leads back to the 2nd key point. If you treat the situation like you’re investing in someone then you understand the risk, you take in lending money. With charity, you’re giving and expecting nothing in return. 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.
I’ve lent money to at least five people in my life, and currently I have one person that is currently in re-payment status with me. The above article really resonates with me. In this scenario, I get a passionate about teaching people how to self-lend and encourage the discipline of savings.
We are all Steve Martin. “I love money. I love everything about it,” he once said. “I bought some pretty good stuff. Got me a $300 pair of socks. Got a fur sink. An electric dog polisher. A gas-powered turtleneck sweater. And, of course, I bought some dumb stuff, too.” Yes, like the iconic comedian, the American consumer loves to consume. Maybe an electric dog polisher and a fur sink are a bit extreme, but the U.S., with its relatively low savings rate, definitely has a spending problem. We find ourselves asking where does all the money go? The chart below in the article depicts average American spending as depicted by the Bureau of Labor Statistics. In 2018, based off the average American earning $78,635, Americans are spending 80% of their income. Obviously housing cost is a factor and eating out & entertainment has been increasing. What’s important to notice in this article is that the average American’s savings is minimal compared to their level of spending. The previous article and this article highlight the importance of leveraging the ability of self-lending to make yourself the lender.
If you need me to check your financial pulse or if there is something I can agree with you in prayer about, contact me.
This week, I’ve included David Goggins – STAY HARD – The BEST OF Motivation – Motivational Video from the Mulligan Brothers YouTube channel.
“If you think you know it all, you’re a fool for sure; real survivors learn wisdom from others.”
Proverbs 28:26 MSG
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