In the theme of back to school season, let’s continue our education
with learning the mistakes people are making with their Money.
Has a friend or relative every asked you the sensitive question?
“Is it possible you can lend me some money?”
Or maybe you have been at a family gathering or party and someone
is talking about the loan they were currently shopping for. You just
downed your second drink and as the alcohol is starting to kick in you say,
“Why don’t you borrow the money from me?”
Emotionally at the time it may seem like the right thing to do.
But is it really?
From my own experience and constantly hearing the nightmare
stories from others, chasing those that are near and dear to you
for the money back always turns into a mission impossible.
A multi-millionaire once told me many years ago to stay away
from lending money to others. He said, “I am not a bank;
that is what banks are for.”
When I heard this, the bells started ringing. It was time
for me to answer the bell and graduate myself from the
school of hard knocks by stopping the practice of lending
money to people I knew.
Banks are pros at qualifying customers looking to borrow
money and once lent out, they know every angle in the book
on how to get it back.
Take it from murphy’s law:
“In order to get a loan you must first prove you don’t need it.”
My advice, let the banks deal with the headaches of loaning
money to people, NOT YOU.
Now some will take what I just wrote with a grain of salt.
So if you must get into the lending business, here are some
helpful tips to follow to increase your chances of getting your
money back:
1. Treat the loan as all business
– Have a written contract
You can find contracts online
– State all the terms clearly
Loan amount, payment terms, any interest, etc.
– Send them payment reminders
Send out an email or letter in the mail for each payment due.
It is amazing how people seem to forget that they owe you
money after they promised you the world they would pay you back.
– Have all the parties sign it
This makes the statement – That you are serious about getting paid back.
2. Be prepared to become the bank.
Once the word gets out you lent money to cousin Jenny, everyone
will come out of the woodwork to borrow money from you.
3. Don’t become the judge over their spending habits.
If they just blew their pay check at the local casino or bought their
two boys new pairs of Nike Air Jordans at the cost of $175 each, while
at the same time they are falling behind on paying you back, resist the
urge of being the interrogator of their spending decisions.
4. Only lend money you can afford to lose.
Never loan money that comes from your retirement account, smart fund
or you need for your own monthly expenses.
NOW, sometimes someone you care about may
be up against a tough financial situation.
Should you lend money in this case?
In these types of situations, it is good to give from the heart.
Think of it as a gift. If they don’t pay you back there is no love lost.
Hopefully, what I just wrote completely opened your
eyes to the pitfalls of being in the lending business.
Put your hard earned money in places that you are
not emotionally tied to. Your family, friends, neighbors, and co-workers
are better off dealing with a bank, then you.