Finance: Getting Out of Debt
The easier thing to do is not to get into debt in the first place. You can read up on this in "Rich Dad Poor Dad" by Robert Kiyosaki or "The Richest Man in Babylon" by George S Clason. Basically, live by the 70/10/10/10 rule - 70% of income for all your expenses, 10% for charity, 10% for active investing (shares, stocks, bonds) and 10% for passive investing (saving account, fixed deposit). Over the long term, you want to reduce the 70% component and increase the active investment component, until the returns from the active investment is sufficient to meet all your needs. Then you are financially-free.
Coming back to debt, one of the most important thing to do is to pay off your credit cards, one at a time and cut it up. Allow yourself to hold one credit card only as the interest charges of 18% per annum is too heavy bear. Read Joan Chatzky's advice at http://money.cnn.com/2004/09/28/pf/debt/chatzky_program_0404/index.htm.
Finance: Should You Lend Money to Friends and Family?
Should You Lend to Friends and Family?
With acknowledgement to LBJ.com.
Generally, the answer is no. That has been my experience so far and for peace of mind, I have decided not to lend money to friends and relatives. It saves a lot of heartache in the long run, although it is very difficult to say no in the first place. Money and relationship experts agree you're walking into dangerous territory any time you enter a financial agreement with a friend or loved one.
Why It's a Mistake
Money is a funny subject. You may think you know someone, but when it comes to money, you're entering into unknown terrain. It's not just what's in someone's chequebook. It's what's in someone's head.
"The problem with lending or borrowing with family is that there are always emotional strings attached". "It is never a simple business transaction."
If you still want to lend money to someone, try to think of it as a gift and not a loan. That way, if you don't get it back you won't be disappointed, bitter, or angry.
The consequences of an unpaid loan can linger for years and ruin what were once strong relationships. You need to mentally prepare for not getting the money back, as your peace of mind is worth much more than holding anger at a family member or friend.
Besides, you may have little recourse if a lending situation doesn't work out. The stress and strain of small claims court may not fit well into your schedule -- or your relationship.
On the flip side, if you owe money to a relative and you're having trouble repaying, don't avoid the topic.
"Talk to the relative from whom you borrowed, restate your intention and your respect for the loan, and offer a clear, even slow, [written] contract for repayment.
Lending? Do It Right
If you want to go ahead and lend some money to friend or family member, make it official. Experts say you should get paperwork in order to formalize the loan. Draft an agreement with a prevailing interest rate, payments, and terms to be spelled out.
Keeping things official can help make the loan seem more businesslike. Not only will a written agreement increase the chances you get back the money, but when things are written down and spelled out, there is less chance of a misunderstanding.
There is the story of a man whose son needed $20,000 to put down on a business. To solve the dilemma, the father gave the money to a friend, telling the son the friend would lend him the money. The son made payments to the father's friend -- on a timely basis -- and the friend then sent a cheque to the father. The dad never told his son the truth about the arrangement, and he doesn't want to.
To put it all in writing, you can draft an informal document yourself, signed by both parties, as long as it details the terms of the loan. Or for a few hundred dollars, invest in an attorney to draft a legal document that would hold up in court. This might make sense if you're lending or borrowing a large sum of money.
Saying No?
No one says you have to say yes if someone asks for money, even if it's for a very noble cause. You could be risking a relationship by saying no, but you're also taking a big risk by saying yes.
If you decide you don't want to lend money to a relative or a friend, saying no can be hard. But being honest may be the best way to go.
- If you don't have the cash to lend, that's easy. Simply tell the truth.
- Even if you do have the money, explain that you value the relationship you have and you fear that a loan could complicate matters negatively.
- If you've loaned people money before and you had a bad experience, tell the person who wants to borrow what happened. Explain that it's not a matter of trusting that you'll be paid back. It's just that you're not interested in a business arrangement that could cloud an otherwise solid relationship.
An obvious question now is how the potential borrower will react to your answer. That's not something you'll have much control over.
A friendship lost because you are not willing to lend money is not a true friendship. And, if a relative is ungracious in accepting your refusal, the loan would have been a bad idea anyway."
When you say no, be armed with suggestions for other no-strings-attached loans worth considering.
- Home Equity: If your relative is a homeowner with decent credit, he or she should consider a home equity loan or line of credit. Interest rates are low, in the 3.5 to 6.5 percent range depending on the amount borrowed, according to BankRate.com in December, 2004. They'd basically borrow against the value of their home with one of these products.
- Bank Credit Cards: Interest rates here aren't usually very favourable, but again, there are no relationship complications here. Search for low-interest rate cards or cards that offer rewards that would come in handy, such as airline miles or points toward products your relative might need anyway. Then give them a list of good deals they can research further.
- Store Credit Cards: If your relative needs money for a specific purpose, they should ask if the store they're buying from offers any deals. These days, no-interest, no-payment credit is common, and they can buy a borrower some time before having to make payments. The only catch here is that if payments are late or the balance isn't paid in full by the time the interest is applied, finance charges dating back to the time the purchase was made could be due.
