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Investor psychology and beating our fears.

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The difference between lending and donating!

Saturday, January 5, 2013

"Creditors have better memories than debtors." Benjamin Franklin.

Benjamin Franklin
US postage stamp, 1847.

A good friend has been telling me on and off how a friend of his has not repayed a $200 loan made almost a year ago. Well, it could be as good as gone, I said. That got him depressed every time. I would then tell him that he is a poor candidate for a lender.

Is there ever a good candidate for a lender?

Well, I was taught that if we should lend someone money, we must do it with the mindset of a donor. 

Yes, a donor. 

The only material difference between lending money and donating money is that with the former, the money could possibly come back to us one day.

Of course, if we lend money as if we were donating it, the sum is written off. So, if the money should be returned one day, it is a "windfall"! Then, we would feel quite happy, wouldn't we? 

This way, we would not have any anxiety about the loan and we might even get to feel quite happy with a possible "windfall" in future!

This actually happened with another friend who told me that a childhood friend he lent $5,000 to suddenly called him and said he was finally able to repay the loan. 

It had been 4 years since the loan was made!

So, what must we remember? 

No, it is not the famous quote from Hamlet which goes: "Neither a borrower, nor a lender be; For loan oft loses both itself and friend."

Instead, everyone should learn this as soon as possible in life and remember it well: 

If we are not able to lend money with the mindset of a donor, don't do it.

Related posts:
Not enough money to be married.
Lending money to someone your care about? Ask questions!

20 comments:

Kim said...

Hi AK

I had on last month lended $3,000 to one of my friend, of course with the mindset that the money will be returned.....pray hard....hard earned money wor...

Anic said...

I only think myself as a donor when I lend money to my siblings.. :)

Not so generous yet with others...

However, I did think about lending money to the participants on this website: www.kiva.org

I like the idea... US25 loan to help someone...

AK71 said...

Hi Kim,

Ah, there is always hope, I am sure. :)

JJ said...

Dear AK,
How many actually can automatic return $?

有借有还,再借不难。

AK71 said...

Hi Anic,

Then, you know who you are ready to lend money to and who you are not. ;)

Microloans? There are controversies and the interest rates seem rather high. Otherwise, I think they are a good idea.

AK71 said...

Hi JJ,

Indeed! How many?

I have seen so many cases of relationships gone sour because of borrowings and it might not even be centred on money!

Don_Jerome said...

I fully agree.

As a student, I once lent $300 about 10 years ago(which was alot of money for me) to a friend who nvr returned it. That's when I realised this fact, if I can't give away the money, its the same as I can't lent it.

My Dad is the same way, I think he lent multiple sums of $3000 to different friends who nvr returned him the money.

That's life I guess...

Jeremy

AK71 said...

Hi Jeremy,

Yes, the money my parents lent to friends and relatives is mostly gone for good. I believe, in total, the money could easily be used for the downpayment of a small 2 bedder condominium in OCR now. They are quite ZEN about it though. Anyway, I think that's the only way to deal with it. Otherwise, they would be tearing at their hair. ;p

Money is hard to make. Make it hard to lose. This is something I always say and it applies here too.

JJ said...

Life and Death, just because of these colourful printed 'smelly paper' !

AK71 said...

Hi JJ,

Indeed, to avoid such "live and death" confrontations, it is important to have the right attitude towards the whole topic.

Om Amitabha. ;)

AK71 said...

For the most part there are three types of personalities when it comes to financial situations.

1. People who pay for themselves – aka Responsible
2. People who pay for themselves AND everyone else – aka Givers
3. People who DON’T pay for themselves or anyone – aka Moochers

Responsible - people are left alone, neither helping nor hindering anyone else.

Givers - are seen as successful and are often taken advantage of.

Moochers - get people to feel sorry for them and never refuse a handout.

“Can I borrow $250, I promise I’ll pay you back?” How many times have we heard that phrase “I’ll pay you back”? I can count on one hand the number of people that have actually followed through with that claim.


- Carrie Smith

Read about her experience:
Help! People Treat Me Like an ATM.

yeh said...

Ak
Saw this old post.

My mum even worse. Cheated by a unknown uncle. A scam.

She was too greedy and foolish.

All her saving gone ( rm55000).

All hard earned money.

sighz...

AK71 said...

Hi yeh,

There are always black hearted people around who are out to con others. We have to be very wary.

Well, your mom is lucky to have you. I am sure you are able to provide her with the financial security she needs in her old age. :)

yeh said...

i have told my hubby.

we decided to delay our retirement to 5 more years later.

probably work till 60 years old.

then i can earn and support my family members:)

AK71 said...

Hi yeh,

Your family is very lucky to have you. :)

yeh said...

My dad has passed away 3 years ago.
My siblings can not earn much.
My mum does not have any insurance plan. Now all savings was cheated. She has no more money.

So i have to take care of her and support her.
One good thing to be malaysian is the free medication.

I can not imagine if one day my mum is old and sick and no insurance coverage for her illness.
Then how I able to support her, to take care of her.

The incident happened just few days ago. Now my mum is very depressed.
whole family is unhappy.

The only thing I can do is to work hard, earn more money and save more money.

AK71 said...

Hi yeh,

Oh, dear. It was so recent? I am so sorry to hear this. :(

However, we have been "talking" to each other long enough for me to know that your financial health is good. So, I am not too worried for you. :)

Maybe, from now on, you would have to be much more conservative in your investment choices. Other than that, you should do well enough. 加油!

yeh said...

Yes. Mum incident just happened few days ago.

I start young to plan for my financial as I knew very well my family financial situation.

one lucky thing is I have enough saving. So that amount of money cheated not affected us much.

and I have set aside stand by fund/emergency fund for family emergency use.

just think of that hard earned money gone in just few hour. Somemore to unknown con man.

Really 不甘心。

AK71 said...

Hi yeh,

On top of your earned income and savings, you also have passive income from your investments. I am sure that helps. :)

There really isn't much you can do with regards to the con job other than make a police report and hope that the con artists are caught one day.

I know how you feel but don't think about it anymore. It won't do you any good. Spend more time with your mom in the meantime. Then, just let time do its job. Time will heal.

yeh said...

Thanks you ak.

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