Lending your money is like lending your clothes. If you keep lending without getting anything back you will soon be walking naked. Continually lending people money without getting a return will make you poor. If I asked you right now whether somebody owes you money, a CD, a DVD, a book or even some clothes you would more than likely say ‘yes’.
When I was at school, friends often borrowed stuff from me. Sometimes it was returned and sometimes not. But I never really kept track of it. When I started working, people also asked to borrow money, and because I couldn’t say no, I lent them money. These loans were seldom repaid unless specifically requested and the borrower often didn’t have the money to repay at that time. This meant that I had to continually ask for my money back. This is called chasing your money, and it is not a pleasant thing to do. The reality is that you seldom start chasing money you lent to someone until you really need it.
”Hey, remember that $100 I lent you two months ago, I need it back.” If you want your money back, you will have to chase it. Chasing money means you go to the person who has borrowed from you, and ask for it back. People owe people money. Companies owe companies money. Families owe family members money. Several people currently owe me money, and I am sure somebody owes you money. You have to ask for it, until you get it back, and don’t stop until you do get it back or you will simply get poorer. Wealthy people always know where their money is and who owes them what, by when.
People seldom return what they have borrowed without being asked to do so. There are three simple rules that, if applied, will cut the time you spend chasing your money and ensure its return:
- If you decide to lend money, lend it as if you will never see it again. If you are comfortable with that, you won’t ever miss that money. You won’t have to chase it, and you’ll sleep soundly. This however, is charity – it’s giving, not lending. If you do lend money not expecting to get it back, and you are repaid, you count that as a bonus! This type of lending should be reserved for family members. It is not recommended, but it’s the right thing to do.
- When you negotiate a loan always use collateral. “Hey, mind if I keep your watch/ camera/phone/car while you keep my money? When you give it back, I will return your watch. That way we can both be sure that you will return the money.” Ensure that the value of the collateral is more than the value of the loan, that way; the borrower will definitely want to return the loan for the item of greater value. If they don’t want to give collateral, then you can always refuse to lend them the money or suggest they borrow it elsewhere. You may find this difficult to do the first time but people will quickly learn that if they want your money, they have to provide collateral. You see, money flows towards order, and retreats from chaos. People, whose lives are organized, will always have money. Those with disorganized lives will always have to provide collateral. Have you ever wondered why banks are so keen to give you money to purchase a house or a car? If you miss your payments, they get the house or car. The house is usually worth more than what they are willing to lend you. This is called collateral. It’s a form of protection against you losing your money.
- When you do decide to (or have the ability to) lend out your money, have a specific, written agreement that includes the following:
- The monies will be returned to me BY, and then include a date. That way, you both know when the money has to be repaid. If it is not, you will have to chase it, and chase it, you must.
- You will return the loan WITH, and then specify the interest. Interest is important because it ensures that the risk of you making the loan is rewarded, and it ensures that your money starts working for you.
- IF you don’t return the loan BY, THEN include what will happen. You may then sell the collateral such as the watch and get your money back.
- ALWAYS ensure the collateral is of greater value than the loan. They will then want to return your money and you will spend less time chasing it. If your collateral is of less valuable than the loan, the borrower has little reason to repay the loan. (When you rent a flat, it is common practice to ask for an additional month’s rent. This is the owner’s collateral, and a means of ensuring you will give adequate notice if you wish to discontinue your rental agreement.)
Lending money is a part of becoming wealthy. When you lend on your conditions, with your rate of interest, in your timeline, with proper collateral, your money starts working for you. With collateral your loan is safe, and can be recouped if not repaid. By learning to lend appropriately, your money starts working for you. By learning to chase outstanding monies owed to you, you ensure that all the money that goes out comes back. Money that comes back to you is always rich with reward. By learning to lend correctly you will spend less time chasing money, and more time counting the returns on your money.