Rules for Lending Money
Posted on Apr 4 2012 at 05:26:42 PM in Money
Suze Orman is another financial person that Team Pancakes listens to.
Every Saturday, we make it a date and watch Suze.
We are such nerds BUT we love her and her fiesty-ness when it comes to finances
and we love her segment: Can I Afford This?
We've become really good at approving and denying people ourselves.
We saw an episode of Suze on 3/10/2012 which i thought was important to speak about during March Money Madness because it's been a topic of conversation in our marriage.
Suze's points are practical and helpful and i hope they help you too!
The Rules of Lending and Giving Money
Suze is NOT a big prominent of lending and giving money
with the expectation of getting money back because in the long run,
most people lend money but NEVER get it back!
According to Suze, you should NOT give money if:
1. If you have credit card debt
(if you have credit card then YOU NEED MONEY)
2. Have at least an 8 month emergency fund
(most people will ask for money when they don't have an emergency fund)
3. You must fully fund your retirement
(It will generate money for you later in life so it's important to fund it)
4. You can easily make your mortgage or rent
5. Your job is secure
(if you are self-employed, generate enough money)
6. you must have insurance
(car, home, medical, term life,)
7. You're funding children's 529 funds
The Biggest Mistake in loaning someone money is expecting the money back.
If the person you are lending money to needs money today, they will need money tomorrow.
If they don't have money today, they will not have the money to give it you tomorrow
(The red light goes off for me....DING! DING! DING!).
According to Suze Orman, the best thing to do is:
Don't loan money,
(only if you meet the 7 criteria)
(you don't feel bad if the person doesn't return it, there is no hard feelings)
Here are what she reminds us about loaning money:
1. If you loan money, loan an amount you can afford
(especially if you are ok NOT getting the money back)
2. Create a promissory note (amount, interest, date to be repaid)
(If you use a promissory note and they don't pay you back, because it's a loan,
you can write it off on your income tax and it can be taxable to them)
These are the keys to loaning and giving money!
I found this information very helpful because while in college, i lent a friend $100.00
and always wondered when i will get it back.
At this point, i don't hold any hard feelings but i alway wonder,
"did she ever plan to give it back to me?"
I guess the answer is "NO!"