The first was to Herbert, who works for me at home on Saturdays, and has done so for the last seven years. He has a bank account but has no overdraft facility, credit card, or bond to draw on when he needs to do some work on his home.
Then I lent money to my neighbour, Sabrina (remember her?). It was more than I would comfortably loan, but I guess her three small kids tug at my heartstrings. They seem to be perpetually hungry and they hit my fruit bowl like little locusts when they’re at my place.
And she promised to pay me back within the month.
The last loan was to Ashraf, the local carwash guy. I advanced him R80 on the proviso that he would return the following day to wash my car.
Yes, I know. I can see your eyes rolling as you think: “How can you take charge of your own financial freedom when you’re rescuing others? Don’t be so naïve, Sasha!”
You are probably right.
In Herbert’s case, he has two instalments left to pay. In Sabrina’s case, the loan is two thirds paid. This sounds good, but it’s not really. I don’t think that she plans to pay back the outstanding amount – it’s been several weeks since her last instalment, and she hasn’t said a word about it.
And as for Ashraf, I haven’t seen him since. Considering that previously he knocked on my door with a very long story at least twice a month, this is probably a good thing.
But all of this got me thinking about lending money to people close to us. We all have a stance on this subject. I know that for some of you, the rule is: never loan money to anyone … regardless.
That’s fine, and you’ll probably be far wealthier than I will ever be, but that’s not where I’m at. However, I have realised that I need to set some ground rules.
Before loaning someone money, I have to ask myself: how financially mature is this friend or relative? Do they have a job? Do they drive a flashy car? Do they live in a house that they can’t reasonably afford? Are they materialistic? Do they lurch from crisis to crisis? Do they own an iPhone and an iPad? Do they think that feeding the kids breakfast from the Friendly Grocer is better than breakfast at home?
Do they have five dogs, three cats and a cage full of budgies? Do they know exactly how much money they earn each month and where all of it goes? Do they have a well-developed sense of responsibility, or a victim/entitlement mentality? Lastly, are they prepared to draw up a budget that would assist them with money management?
Based on this far-from-exhaustive list, I realised a thing or two. My sister is probably the only person in the world I would unreservedly lend money to. She is financially sussed, has a budget, and is super-conservative in the way she spends it.
Turns out that, barring unforeseen events, people like her don’t usually borrow money.
What to do about those who do need a loan?
I’ll lend to Herbert again. He pays me back and takes the responsibility seriously. But I will apply a few more rules, namely:
- I will not loan more than I can afford to lose;
- I will insist on a repayment schedule; and
- I will follow up immediately if a payment is missed.
And what about Sabrina? Unfortunately, here I need to separate reason from emotion and learn to say no – without exception.
I’m all for showing generosity towards others, but frankly, generosity is usually lost on the fiscally immature.