Monday, May 17
“Neither a borrower nor a lender be” in this new year BUT…

“Neither a borrower nor a lender be” in this new year BUT…

As yet another holiday season fades away into beautiful memories shared with loved ones, the importance of family becomes more obvious. For some, the season presents the only opportunity to have fun and frolic time with the ones they care about.

Connecting with family and loved ones makes our hearts full, and for some, family is not an important thing. It's everything. No matter what, your family makes up a huge part of who you are.

However, in today’s economic environment, a lot of families can face difficulties making ends meet. As a result, the ‘well-to-do’ in the family often face situations where other family members approach them for financial assistance.  

Lending money to a family member or friend is a risky proposition, one that could end very badly; you could lose your money and wreck an important relationship.

“Neither a borrower nor a lender be.” These famous words came from Polonius, Shakespeare’s chief counsellor to King Claudius in Hamlet. As Polonius gives some fatherly advice to his son Laertes, Shakespeare gives some timeless advice to us: Do not lend money to family or friends.

Why shouldn’t we lend money to friends and family? Polonius answers that in his next line: “For loan oft loses both itself and friend.” Polonius knew that a loan to a friend or family member often results in the loss of both the money and the relationship.

Nonetheless, when someone you love is in a serious bind and you have the means to help, it can be impossible to say ‘No’. Therefore, a way out of this bind is to be smart about setting up the terms and a schedule for repayment with your family. As long as you and your money stay protected, lending to someone you love is feasible– even if it isn’t necessarily advisable.

 Always get the full details

While you might be anxious about hurting a loved one’s feelings, you need to know where your cash is going to decide if it’s worthy of a loan. A bank would never blindly hand over funds without knowing what it’s being spent on, and neither should you.

If a family member becomes offended, take it as a red flag that it’s not a deal you should make. And if you are provided details, follow up on them. 

The perception most people have is that money will solve all problems in life and that isn’t always true. It doesn’t always deal with underlying financial issue at hand, sometimes lending the money just masks the real issue.

It will be worth finding out what is making them need financial help especially if a particular family member is fond of borrowing.

Instead of lending money, you can even help in other ways when you understand the underlying problems like allowing your kids to move back in with you so they can cut back on rent and utilities freeing up some funds for them. You can also employ a qualified family member if that is where the problem stems.

This side job may go a long way toward helping them earn the money they need to pay their bills and help you finish up any jobs that you've been putting off. Treat the arrangement like you would any other employee, that is spell out clearly the work that needs to be done, the deadlines and the rate of pay. Be sure to include a provision about how you'll deal with poor or incomplete work.

These can prevent some of the hostilities that can develop as a result of defaulting a loan.

Deal With Cash Only

If a family member requests that you co-sign for a loan or any scheme, shut it down as soon as possible. Never put yourself in a position where someone else’s actions could affect your ability to borrow or secure credit in the future. You can control cash, and lending it won’t directly affect your credibility. If a loved one asks for help, only deal with cash or politely decline.
Also, always consider the ‘gambling’ saying “you should never bet more than you can afford to lose.” The same can be said for lending to a friend or family member. Since the money might never be paid back, you need to decide on an amount you will be willing to forgive in order to save the relationship– so, if GH₵5,000 could break you financially, don’t lend it. Even the most well-meaning loved one might fall on hard times and default.

Discuss Terms
Discussions about money with family members can be awkward, especially if you’re in a position to lend. But not going over the details can possibly hurt you both. Make sure that you clarify the amount being loaned, the interest rate, the repayment schedule, and late fees well in advance of any money changing hands. Charging interest to a family member might seem unnecessary, but it’s the fairest way to protect yourself. Interest rates usually inspire people to pay back loans in a timely manner.

Immediately getting the terms out in the open reduces the possibility of any future miscommunication or confusion. You need to talk about a plan of action, be it late charges, a collection process, or legal action. This sets the standard for the business relationship, so you both know what will happen if the deal goes sour.

You should consider giving the borrower periodic reminders (monthly, quarterly or annually) so they know you are expecting the repayment. It also helps you to know in advance if there may be problems which may cause them to default.

Most importantly, make sure to get all agreements in writing. Having written details that both parties agree to by signature is also a great tool to prevent misunderstandings. Should legal action ever become necessary, a written contract protects you far more than a mere handshake.

 Consider the Impact
When you lend money to a family member, you impact just about everyone else you’re related to. Allowing one family member to borrow and not another could drive a wedge into your relationships. Other family members might see favouritism or enabling, so seriously think about how going through with the loan will make others feel.

If you’re a parent considering loaning money to a child, it might even be a good idea to call a family meeting to discuss the terms openly. That way, none of your other children will be confused or hurt by the decision.

 Distance Yourself
One of the biggest mistakes you can make when lending to friends and family is to micromanage that person’s spending after you’ve made the loan. Once you’ve agreed and closed the deal, the money that you lend is no longer in your control– obsessing over how it’s spent will only bring about problems. Separate yourself from the money and focus on repayment, not on how it’s spent.

 Build it into your budget

If lending or giving money to a family member is something you are obligated to doing often, build it into your budget so that you can make provisions for the loan you are giving without disrupting your other expenses and money goals.

This also takes away the element of surprise by making you prepared for such situations. You have to ensure you put your hopes on money that is due but you haven’t received.

When to Say No

If you aren’t comfortable with the lender-borrower relationship, it may be in both your best interests to decline your loved one’s loan request. Money can be a serious force in driving apart friendships and family relationships, so trust your instincts and simply decline if you feel uneasy about the deal. Perhaps you can help in other ways: offer a small cash gift, buy groceries, or find other service-based ways to lend assistance.

Another thing to note is that, it’s not advisable to lend money to family members who are engaged in shady activities or addicted to substances. Giving them funds can enable their behaviours and you simply can’t throw money at people who do not want to change.

There is not enough money in the world to help them and you are not helping them, you are participating in their insanity. The funds will not help them get dignity or a future and you could get into trouble with the law.

There’s no guarantee a family loan won’t bring disappointment and conflict, but that won’t stop us from helping the people we love the most. If you agree to lend money to family, having a plan is the best thing you can do. Be sure to make sure to set expectations, draw up a contract, and make sure your spouse or close relatives are aware that the loan is happening.

To the borrowers, if you fall behind on a loan from a loved one, it is important to keep the lines of communication open. Good communication is the best way to avoid hostility with family and friends who have loaned you money. Like it or not, a person lending money feels like it’s an investment. They want to know how the project or business is doing and whether this loan is going to be paid off.

Borrowing Wisely– From Where?

Almost everyone needs to borrow money at some point. Maybe it's for a new home. Maybe it's for college tuition. Maybe it's to start a business.

Nowadays, professional financing options are many and varied. Thus, it is important to choose the right lending source, by reviewing the pros and cons associated with each.

Banks

Banks offer a variety of mortgage products, personal loans, construction loans, and other loan products depending upon their customers' needs. By definition, they take in money (deposits) and then distribute that money in the form of mortgages and consumer loans at a higher rate. They make their profit by capturing this spread.

Banks are a traditional source of funds for those purchasing a house or car or those that are looking to refinance an existing loan at a more favorable rate.

Many find that doing business with their own bank is easy. After all, they already have a relationship and an account there. In addition, personnel are usually on hand at the local branch to answer questions and help with paperwork. A notary public may also be available to help the customer document certain business or personal transactions. Also, copies of checks the customer has written are made available electronically.

The downside to getting financing from a bank is that bank fees can be hefty. In fact, some banks are notorious for the high cost of their loan application or servicing fees. In addition, banks are usually privately owned or owned by shareholders. As such, they are beholden to those individuals and not necessarily to the individual customer.

Finally, banks may resell your loan to another bank or financing company and this may mean that fees and procedures may change—often with little notice.

Credit Unions

A credit union is a cooperative institution controlled by its members— the people that use its services. Credit unions usually tend to include members of a particular group, organization or community to which one must belong in order to borrow.

Credit unions offer many of the same services as banks. But they are typically nonprofit enterprises, which helps enable them to lend money at more favorable rates or on more generous terms than commercial financial institutions. In addition, certain fees (such as transaction or lending application fees) may be cheaper.

On the downside, some credit unions only offer plain vanilla loans or do not provide the variety of loan products that some of the bigger banks do.

Peer-to-Peer Lending (P2P)

Peer-to-peer (P2P) lending, also known as social lending or crowd lending, is a method of financing that enables individuals to borrow and lend money without the use of an official financial institution as an intermediary. While it removes the middleman from the process, it also involves more time, effort, and risk than using a brick-and-mortar lender.

With peer-to-peer lending, borrowers receive financing from individual investors who are willing to lend their own money for an agreed interest rate. The two link up via a peer-to-peer online platform. Borrowers display their profiles on these sites, where investors can assess them to determine whether they would want to risk extending a loan to that person.

A borrower might receive the full amount he's asking for or only a portion of it. In the case of the latter, the remaining portion of the loan may be funded by one or more investors in the peer lending marketplace. It's quite typical for a loan to have multiple sources, with monthly repayments being made to each of the individual sources.

For lenders, the loans generate income in the form of interest, which can often exceed the rates that can be earned through other vehicles, such as savings accounts and CDs. In addition, the monthly interest payments a lender receives may even earn a higher return than a stock market investment. For borrowers, P2P loans represent an alternative source of financing— especially useful if they are unable to get approval from standard financial intermediaries. They often receive a more favorable interest rate or terms on the loan than from conventional sources too.

Still, any consumer considering using a peer-to-peer lending site should check the fees on transactions. Like banks, the sites may charge loan origination fees, late fees, and bounced-payment fees.

401(k) (Retirement) Plans

401(k) plans allow employees to invest money on a tax-deferred basis. Their primary purpose is to provide for an individual's retirement. But they can be a last resort for financing.

The money that you've contributed to the plan is technically yours, so there are no underwriting or application fees if you want to withdraw it. Or rather, borrow it—since a permanent withdrawal incurs taxes and a 10% penalty if you're under 59.5 years old.

Most 401(k)s allow you to borrow up to 50% of the funds vested in the account, to a limited amount and for up to a number of years. Because the funds are not withdrawn, only borrowed, the loan is tax-free. You then repay the loan gradually, including both the principal and interest.

The interest rate on 401(k) loans tends to be relatively low, perhaps one or two points above the prime rate, which is less than many consumers would pay for a personal loan. Also, unlike a traditional loan, the interest doesn't go to the bank or another commercial lender— it goes to you. Since the interest is returned to your account, some argue, the cost of borrowing from your 401(k) fund is essentially a payment back to yourself for the use of the money.

Bear in mind, though, that if you remove money from your retirement plan, you lose out on the funds compounding with tax-free interest. Also, most plans have a provision that prohibits you from making additional contributions to the plan until the loan balance is repaid. All of these things can have an adverse effect on your nest egg's growth.

Credit Cards

If used responsibly, credit cards are a great source of loans but can cause undue hardship to those who are not aware of the costs. They are not considered to be sources of longer-term financing. However, they can be a good source of funds for those who need money quickly and intend to repay the borrowed amount in short order.

If an individual need to borrow a small amount of money for a short period, a credit card (or a cash advance on a credit card) may not be a bad idea. After all, there are no application fees (assuming you already have a card). For those who pay off their entire balance at the end of every month, credit cards can be a source of loans at a 0% interest rate.

On the flip side, if a balance is carried over, credit cards can carry exorbitant interest rate charges (often in excess of 20% annually). Also, credit card companies will usually only lend or extend a relatively small amount of money or credit to the individual. That can be a disadvantage for those that need longer-term financing or for those that wish to make an exceptionally large purchase (such as a new car).

Finally, borrowing too much money through credit cards could reduce your chances of getting loans or additional credit from other lending institutions.

Margin Accounts

Margin accounts allow a brokerage customer to borrow money to invest in securities. The funds or equity in the brokerage account is often used as collateral for this loan.

The interest rates charged by margin accounts are usually better than or consistent with other sources of funding. In addition, if a margin account is already maintained and the customer has an ample amount of equity in the account, a loan is somewhat easy to come by.

Margin accounts are primarily used to make investments and are not a source of funding for longer-term financing. That said, an individual with enough equity can use margin loans to purchase everything from a car to a home. However, should the value of the securities in the account decline, the brokerage firm may require the individual to put up additional collateral on short notice or risk the investments being sold out from under them.

Finally, in a market downturn, those that have extended themselves on margin tend to experience more severe losses because of the interest charges that accrue as well as the possibility that they may have to meet a margin call.

Financing Companies

Financing companies routinely make loans to those looking to purchase any number of items. While some lenders make longer-term loans, most finance companies specialize in providing funds for smaller purchases such as a car or major appliance.

Finance companies usually offer competitive rates, and the overall fees can be low when compared to banks and other lending institutions. In addition, the approval process is usually completed fairly quickly.

However, financing companies may not provide the same level of customer service or offer additional services, such as ATMs. They also tend to have a limited array of loans.

In conclusion, whether you are looking to finance your children's education, a new home, or an engagement ring, it pays to analyze the pros and cons of each potential sources of capital available to you.

WANT TO BECOME A GOLF-LIKE INVESTOR?   …Try these!

WANT TO BECOME A GOLF-LIKE INVESTOR? …Try these!

“Successful investing takes time, discipline and patience. No matter how great the talent or effort,

Got a ‘F**K YOU’ Money in Place?

Got a ‘F**K YOU’ Money in Place?

Sometimes we let emotions get in the way of making sound financial decisions which leads most people to make mistakes when making financial decisions. These emotions are even more pronounced in most employer-employee dealings. Most employment related financial decisions are made on impulse with little or no thoughts about the implications of such decisions. ‘F**k You’ money is one of the areas where this bias is most prevalent.

Just for better understanding– ‘F**k You’ Money is an amount of money an employee has that can allow him/her to tell the boss to take a hike when they feel the employer is becoming a pain in the back side. It is sort of an insurance policy that you have in your pocket which gives you the power to walk away if you feel like doing so. I have posed this question to a few people and most of them responded by plucking a very huge figure from the air and the response I get is one completely devoid of the thinking process that will go into such a decision. Most individuals just mention some millions of dollars or cedis as the amount they will need to walk away from their bosses. Others indicated that they will be willing to walk away even if they didn’t have money stashed anywhere. The emotional side of this decision is very strong and sometimes overshadows the very objective of making such a decision.

Most bosses or business owners normally push the employees so they can get more work from them than they are paying for and therefore most employees naturally hold a very bad view of their bosses. I read somewhere that employment is increasingly seen as a temporary economic arrangement for the mutual benefit of the company and the worker and it last only as long as both parties find it advantageous.

 I have come across employees who will walk away from a terrible employer even if they do not have the finances to support such a decision. I have also heard of people who will stay employed even under the most terrible of conditions. For these people the concept of ‘F**k You’ money is not very relevant to them. In any case anybody who is employed should have some sort of reserved funds that will come in handy in case of the unexpected happens.

The ‘F**k You’ money can also be stretched to moneys that an individual will need to have in order not to work again. Others may look at it as contingency fund to cater for the period between losing a job and finding a new one.

In any case the most important decision in dealing with ‘F**k You’ money is the amount one will need and where one has to keep that money. The most objective way of deciding how much money will be needed is to start looking at your living expenses. An individual’s living expenses is key in calculating the amount of money needed to be kept as an emergency fund. If the level of expenses cannot be ascertained, then it will be very difficult to arrive at an accurate value. If you do not have a budget or are not tracking your spending, then you need to start doing so now because without it, your chances of having financial and investment success will be very low and you wouldn’t have any business talking about ‘F**k You’ money. Let’s assume that you are either tracking your spending or have a fair idea of how much goes out of your pocket each month.

Those of us who spend more than we earn should not have any business talking about ‘F**k You’ money because it will not work. My advice to these people is to just overlook whatever treatment the employer is taking you through now until you are able to live within your means and can save. With a knowledge of your monthly expenses in hand, the next step is to decide on how far you want that ‘F**k You’ money to go. It will not make a lot of sense to leave work and run out of money in the next month.

The original idea of ‘F**k You’ money is so you do not have to work for anyone again. Another approach is to have enough to take care of you until you find another job and hopefully a more pleasant boss to go with. In the first scenario, you guess or if possible, predict how long you will live and then work backwards to calculate the total money you will spend from now to that period. If the total expenditure from now till your death looks very huge, don’t panic because we will adjust that amount by returns expected on such funds. If your plan is to have your ‘F**k You’ money last until your next job, then your problem is not complicated. You will need to estimate how long it will take you to get your next job and use this to calculate your total expenditure from the time you leave your job till you find a new one. I am making a conscious effort to keep any complicated calculation out of the discussion. The reason is we can look to the internet to learn how these calculations are done.

The next important question to ask is where to keep this ‘F**k You’ money?

My advice is to keep it with a financial institution in a low risk low return product. Treasury bills and related product comes to mind. When safety comes into any discussion then we have to look at low risk investments. There is always the temptation of being very aggressive and taking on more risk but I think the risk is not warranted in this case if the money is meant to be a ‘F**k You’ money.

The question about ‘F**k You’ money almost always generates an emotional response but what actually goes into answering it requires an individual to have an idea about personal expenses and then armed with this information, calculate how much money will be needed in this case.

A similar concept to ‘F**k You’ money is contingency fund.

This is money that an individual set aside to take care of emergencies when they appear. How much contingency a person needs to hold depends on the safety of a person’s employment. If your job is secured with no threats of layoff or sudden dismissals, then a contingency fund which holds three months of person’s expenditure is advised. If the stability of a person’s job is questionable then six months to a year’s expenditure should be held in a contingency fund.

Most individuals do not take the concept of contingency serious but it is one of the pillars of proper financial and investment discipline.

Any individual whether young or old, rich or poor must have some money set aside for emergencies. This is what will make the difference between being able to deal with a financial emergency and watching helplessly as an emergency drowns you financially.

In all, by revisiting the ‘F**k You’ money concept and rehash the point that most decisions taken in this area is loaded with emotions and devoid of very serious financial consideration, if you do not have that ‘F**k You’ money and your boss is getting on your nerves, my advice is bury your pride and keep working until you can raise that money.

 

Winslow Sackeyfio

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Knowing your money personality helps to shape financial and life goals

Knowing your money personality helps to shape financial and life goals

Your money style, whatever it may be, can be helpful, but it can also block your progress.

Almost everyone needs to borrow money at some point. Maybe it's for a new home. Maybe it's for college tuition. Maybe it's to start a business.

Nowadays, professional financing options are many and varied. Thus, it is important to choose the right lending source, by reviewing the pros and cons associated with each.

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