“Neither a borrower nor a lender be; / For loan oft loses both itself and friend, / And borrowing dulls the edge of husbandry.” – Polonius, in Shakespeare’s Hamlet
I have a weakness for helping people. Helping someone in need makes me feel stronger and better somehow. But helping is a dangerous thing. It can damage the helper, the helpee, and even the relationship.
An example. About a month ago, I wrote a letter to the partners of a small company I’ve been consulting for, suggesting that they allow me to bill the business a percentage of my office expenses. Since my work with the company has been consuming more and more of the time I spend at my office, I thought the request was reasonable.
The partners – a brother/sister team – had opposite reactions. He was fine with it, but she objected. She was worried about the way her brother was running the business, and complained that the company was overstaffed and undisciplined. On top of that, she was suspicious of his accounting practices and wanted to audit the books and review his policies and procedures to “help” him get things in shape.
I sent back a letter thanking her for her ideas, but reminding her that her brother is the CEO (she is an investing partner only) and that she shouldn’t try to manage it for him. I recommended that we make our suggestions and examine the numbers at our twice yearly meetings.
Her written response was furious. She accused me of getting more money than I deserved for my help with the business. She refused to budge on any of her positions, and told me that her brother (out of frustration, I’m sure) is going to allow her to look at the company’s books. She won’t find anything out of the ordinary, but the whole process is going to be a huge waste of his time.
When I first met her, she was a single mom who was living paycheck to paycheck. I helped her get a good-paying job with flexible hours and a lot of room to grow. A bright woman, she climbed her way to the top of the company. At that point, I encouraged her to open her own business. She did, and I “donated” a lot of money and advice to her along the way. As her business has grown, I’ve invested in various projects she’s put in front of me – some successful and some failures. And when she introduced her brother to me several years ago, I invested in his fledgling business, too.
She now makes a steady six-figure income, and I am certain she would still be struggling had I not stepped in and helped her out.
It’s disappointing to see someone whose career I’ve helped so much turn against me. It’s as if she has to find fault with me so she won’t feel guilty.
This has not been my only bad experience with someone I invested time and money in. After lending Glen $30,000 several years ago, I stopped hearing from him. When I called, he explained that he was working 18 hours a day trying to keep his business afloat. He apologized for not staying in touch, and invited me to come visit his store.
I did, and liked what he was doing. Glen is a hardworking guy with good ideas. So when he asked for another loan – a bridge loan – I gave it to him.
Two years passed before I heard from Glen again. We met, and he was, as always, charming and endearing. He told me all about how he’d finally gotten his business profitable, and how he was in the process of starting two promising projects.
I congratulated him, looking forward to taking the repayment check I was sure he was going to give me. But instead, he asked for another loan. “Just to tide me over until I get these projects going.” He never even mentioned repaying my previous two loans.
I was flabbergasted.
Despite my bad experiences with people like these, I continue to help others. And I’m sure that if my bad experiences haven’t prevented me from lending a hand, they certainly won’t prevent you from doing so. So I’ve come up with some guidelines I hope you’ll turn to the next time you think of giving your money or advice to someone who wants or needs it.
When and How to Give Advice
Rule 1: Give advice only when it’s asked for. I have made the mistake of offering advice … very good advice … to people who weren’t ready or willing to listen to it. As I was giving the advice, I looked into their eyes and realized there was zero chance they were going to pay attention to what I was saying. I thought to myself, “This person has no idea how valuable this could be to him.”
Rule 2: Give the same good advice only once. I have friends and colleagues who are perennially in money trouble, and to whom I continually explain how to get out of debt and develop wealth. This is a foolish habit of mine. If you give someone good advice and he doesn’t listen to it the first time, it is better to say nothing from then on. Just nod sympathetically when he tells you, every time he sees you, how life has screwed him.
Rule 3: Make everyone but close friends and relatives pay for your advice. Countless psychological studies have proven that people don’t value things they get for free. If you want people to listen to your advice, charge for it. If you want it to be taken as seriously as it should be, charge a lot for it.
When and How to Give Money
Rule 1: Don’t give anyone but close friends or relatives money for free. You will almost always regret it. I give away hundreds of thousands of dollars every year, and it is almost all wasted. It is wasted because the receiver almost never invests it wisely. Easy come, easy go. That’s the way it is. I continue to give away money because I can’t help myself. It seems worth it to me, because every once in a while – maybe 10 percent of the time – it is invested wisely.
Rule 2: If you do give away money, don’t expect it to be used wisely and don’t expect gratitude. More often than not, you will create resentment in the heart of the receiver.
Rule 3: If a friend or colleague has a good business and needs a loan, extend him one – but only if (a) you think it’s a good investment on an arm’s length basis and (b) you are willing to charge him an arm’s length interest rate on the loan.
Rule 4: An arm’s length loan has a written contract, terms, and collateral. Be satisfied with all three before you lend the money.
Rule 5: Realize that even though you have the power to seize the collateral if your friend or colleague reneges on the loan, you may not want to do that, because it might end the relationship. Figure out beforehand which is more important – the return of your loan or the continuation of your relationship. If the latter, be prepared to lose everything without resentment.[Ed. Note: Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]