… Nor a Lender Be

“Neither a borrower nor a lender be, for loan oft loses both itself and friend, and borrowing dulls the edge of husbandry.”

Polonius, Hamlet Act I, Scene 3, 75 – 77

Do Not Loan Money

I never loan money. Ever. At first glance, that statement might strike you as miserly. Nothing could be further from the truth. I am not suggesting that you should never help friends and family in the form of monetary assistance. I am simply saying that you should consider it a gift vice a loan. A loan implies that the money should be repaid at some point in the future. There are two reasons why I believe this is a practice better avoided.

william-shakespeare

First, money has a tendency to put a strain on relationships, particularly if the recipient has a difficult time repaying the loan or is late with repayment. They are stressed because of their desire to repay the loan, and the lender is stressed because they had expectations of repayment, and likely, a plan for using the loaned funds for some other purpose.

Impact to Retirement Planning

Loan Text ExchangeSecond, the practice can be disruptive to your retirement planning. Just as it can dull the edge of husbandry (management and conservation of resources; thrift), it can dull the edge of retirement planning. Once you establish your retirement plan and have identified the amount you need to invest on a monthly basis to meet your goals, your first priority should be to pay yourself first.

If a situation arises and you have determined that a family or friend has a sincere need for financial assistance, and providing that assistance will not impact your plan, you should assist with a gift vice a loan.

I assure you that if you loan a family member $300 of the $500 you were going to commit to your Roth IRA one particular month and they are not able to repay you, they are going to feel bad, you are going to feel resentment, and you will be $300 – not even counting the compound interest you will not have earned – further from your objective.

Give a Gift

Conversely, if you find that you have an additional $150 at your disposal after meeting your monthly financial goals, and you can assist a family member with a gift of half the $300 they may need, they will be very appreciative, you will be glad you could assist, and there is no chance for resentment and strain on the relationship. Once you write that check for $150 it is forgotten forever and you move on and prepare to meet your next month’s financial goal.

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.

6 Comments

  1. Mind if I friend you on Google+?

  2. I’m with you, James. Mrs Groovy and I are still working on the details but I don’t believe in giving to formal charities anymore. We just see that many of the big name ones have too much overhead for our taste. I’d rather give a big tip to a server in a restaurant (one I know is a college student) and the occasional friend or relative who’s in a jam. I don’t lend, I just give – if it’s within my charity budget. So far, we’ve been fortunate, no one really has come back asking for more. The few of them who might come back, we wouldn’t give to again because with them it only dulls the edge of husbandry. And they don’t want any advice and they don’t want to help themselves. Thank you for a provocative post, James. It’s something we all need to think about.

    • Indeed. Like you, I try to pass along knowledge that will be helpful in improving their situation. If someone is not receptive to my message, and insist on continuing to do the things that led them to the space they currently occupy, I’m certainly less inclined to give a monetary gift. My advice/suggestions are limitless, my money? Not so much.

      Thanks for stopping by, my friend.

  3. The problem I have with the concept is that once you give once they’ll likely be back asking for more after you’ve established yourself as a source of funds. Some years ago Warren Buffett’s sister asked him for some money to remodel their kitchen. Buffett’s answer? “Go to the bank.” It’s certainly not that he couldn’t afford it. It would have not even been a rounding error – comparatively speaking mere pennies in our situation. Obviously there’s a sacred principle involved and learning to say “No” is important. Another time Buffett got asked to do a friendly $10 wager on a round of golf. “No.” … “Alright then! Let’s just make it $1.” …”No. I treat EVERY dollar as if were $1 billion.” or words to that effect.

    • To give or not give, and how to do it, is definitely a very personal thing. We all know that anything to do with ‘money’ can elicit strong emotions. With that said, it strikes me as incredibly miserly for someone to not assist family or friends, under any circumstances, even after their own wants/needs/desires have been met.

      As I indicated, I have settled on the idea that it is reasonable to give a gift once my own wants/needs/desires have been met. With that, I would add that I also speak with the recipient, try to get an understanding of how they ended up in their current situation, and offer education/guidance/suggestions for how they can change their financial situation.

      Thanks for stopping by and sharing your thoughts, my friend.

Leave a Reply

Your email address will not be published. Required fields are marked *