When it comes to money there are a couple rules I encourage people to follow.
The first rule is: Never tell anybody how much you truly make. You can share a portion of what you make, but not the entire number. Be particularly careful if your income is more than 50% higher than the median or average income for your age. A portion of people can’t help but become envious and despise you if you make more than them.
The second rule is: Never ask to borrow money from friends and family. As soon as you ask to borrow money from friends and family as an adult, you lose their respect and honor for you. And if you are a ONIG Financial Blog, you value respect and honor above all else. Asking to borrow money from the people you care about can lead you down a deep dark hole.
Let me share with you a short story about how one man asked to borrow money from his close friend and girlfriend and what happened after. I’ll also share with you reasons why asking to borrow money is one of the worst financial moves you can make.
I met a man named Vien at Lucky Chances casino one evening. He was sitting next to me at the $1-$1-$2 Texas No-Limit Hold’em table, swiveling what looked like a cognac. $1 was the rake, $1 was the small blind, and $2 was the big blind.
Vien was what poker players refer to as a Maniac, a wild player who bets big with mediocre hands. Vien had already bought in four times for $200 each because he kept trying to bluff more skilled players out of a pot. One time, he went all-in on a guy who flopped a set of Kings. All Vien had was a 10-high.
I’m usually a tight, but aggressive player when I have winning odds. But this night, I found myself playing a little looser than normal because the $44,500 worth of Tesla stock I had bought for an average price of $289.46 in 3Q 2021 had miraculously broken $500. I had already mistakenly sold about $50,000 worth of stock when the stock hit $420 because there was a point where I was down about 30%, or $28,000.
I figured, with realized gains of $15,000 and $35,000 in unrealized gains at the time from just one stock, I could afford to gamble $1,000 at the poker table and have some fun. I bought in for $200.
Vien and I had a couple good battles where we’d try and bluff each other off our hands. I lost a $140 pot with a mid-pair but beat him in a $220 pot with a straight. We kept it loose! It was all good fun.
Vien then began talking about life and how he was trying to make $7,000 in poker winnings to offset some baccarat losses he had sustained on the other side of the casino floor. Vien was unshaven but well dressed with a black $6,000 Hublot watch. He appeared to be in his late 30s.
I asked him how he got down $7,000 when you can’t start a gambling tab at Lucky Chances. He said the $7,000 was from borrowing $5,000 from his best friend and $2,000 from his girlfriend. He lost it all.
“I tell you, man. I was feeling it that night! I was up $2,600 after a couple hours, but suddenly, my luck started going cold. I couldn’t catch a lucky break. And when I pressed, I just lost more.
Now I’m here playing this $1-$1-$2 game trying to win some money a little at a time. But I have no patience for this small game. I was making $100 – $200 bets in Baccarat. Here, a big bet is like $40,” Vien explained.
Vien later admitted that he shouldn’t be here, but that the casino was only a five-minute drive away and his girlfriend recently moved out, disgusted by his gambling habit. He didn’t know what else to do but come to the casino to at least play with his good friends.
About two and a half hours later, Vien finally got up and left. He decided to shove all-in pre-flop with his remaining $80 on a suited King-10. He lost to a pair of pocket 5s. Overall, Vien lost $1,000 at my table that night.
If you’re an adult over the age of 25, I say never ask to borrow money from family or friends. Here are the reasons why.
1) You will make your parents feel like failures.
Good parents spend an inordinate amount of time and money raising you. A great portion of parenting consists of teaching a child what is right and what is wrong. Further, a good parent will also teach their children about the importance of work ethic, saving and investing, and not buying things they cannot afford.
The entire 18-21-year parental journey is about teaching a child how to become an independent adult so they can fend for themselves in this competitive world. If you ask your parents for money as an adult, especially after the age of 25, you will have completely negated all their efforts as parents.
Your asking them for money will make them feel like complete parental failures. They will question what they did wrong. They will go through years of examples and wonder what they could have done differently.
Rightly or wrongly, they will wonder if they raised an entitled child who does not value hard work and discipline. They will be baffled why you can’t find other ways to come up with the funds to pay for your wants, needs, or errors.
Bottom line: If you love your parents, you will not want to make them feel like failures after they’ve spent two decades raising you.
2) You will increase your chance of losing your friend.
Although a good friend should be willing to lend you money, privately, he or she will wonder whether they should continue to be your friend. They’ve got their own problems to worry about. Do they really want to be encumbered by a friend who has money issues so bad that they’re willing to ask you for money?
Although friends should help friends, friends should also try to make a friend’s life better, not worse. The only exception is if your friend is so rich that borrowing the amount you need makes no difference. Even so, your rich friend might stop wanting to hang out with someone like you.
Vien did mention that he feels an immense pressure to pay back his buddy. Not only does he feel the pressure, but he also said he feels very guilty for putting his friend in a tough spot. His friend has two kids and didn’t tell his wife he lent Vien $5,000. As for his girlfriend, well, she already moved out. He’ll pay her back eventually, maybe.
Bottom line: Friends don’t ask friends for money.
3) You demonstrate your inability to handle your business.
By asking a family member or friend for money, you are explicitly telling them that you do not have the willingness or resourcefulness to find ways to make more money or find alternative means to borrow money. You also make them believe that if they lend you money, you’re just going to end up borrowing more money in the future.
Unless you have a medical mishap or are facing a life or death situation where a loan shark is going to execute you by midnight tomorrow if you don’t pay him back, there are plenty of ways to get money before risking your relationships.
For example, credit card companies have been handing out credit cards like candy in this bull market. Even if you have poor credit (<660), there are plenty of credit cards that will lend you money via a cash withdrawal.
The average credit card cash advance interest rate is about 24 percent, or 7 percentage points higher than the national average rate charged on consumer credit cards. You also have to typically pay a 5 percent withdrawal fee, or $10, whichever is greater. In other words, if you take out a $1,000 loan, you’ve got to pay a $50 withdrawal fee.
Even though a 24 percent interest rate is outrageously high, that interest rate is for one year. Even if it took you a full year to pay back the $1,000, wouldn’t you prefer paying a $240 interest + $50 withdrawal fee rather than crushing your pride and risking a precious relationship?
There is a better solution. Instead of withdrawing cash from a credit card, you can privately apply for a personal loan with a lending marketplace like Credible. The industry average interest rate for a personal loan is 10%. But the interest rate can be lower if you have a good credit score. 10% is better than the 24% average you would pay with a credit card.
Even if you had to borrow $10,000 and pay a $1,000 interest payment over a year, wouldn’t you rather do that than face the shame of asking your parents for money after they’ve already paid for so much already? The answer seems clear.
Finally, if you have a 401(k), you can borrow from it and pay interest that goes back to the account. However, I’m just not sure if people who are seriously considering borrowing from friends and family have enough in their retirement accounts in the first place.
Bottom line: There are plenty of ways for you to borrow money, raise money, or make money without burdening someone you care about. Protect your honor.
Let’s say you simply cannot qualify for any type of lower-interest-rate loan and are unable to drive for Uber, assemble furniture for TaskRabbit, find freelance writing opportunities at Upwork, flip burgers at McDonald’s, or mow your neighbor’s lawn. I’ve done all those jobs and they are so tiring!
You’re also unwilling to sell any belongings to raise cash. In fact, you’re so desperate that you’re looking at payday loans that have an average annual interest rate of 391 percent. Don’t do it! There’s a better way.
The best way to ask for money from a family member or friend is to not ask for money but to ask for a job you can do for them. By asking to do some work in exchange for money, you save your pride, protect your friendship, and make your parents proud that you still know the value of work. You don’t have to go into detail why you need the money. You can just say you need some extra side hustle income to pay some bills or save more for retirement.
Everybody needs some help with something. Perhaps your parents could use your help to clear out the garage that has piled up with years worth of crap. Or perhaps your friend could use your help to watch her kids while she goes away for a weekend. Or maybe you could provide some consulting advice in a field of your expertise.
Whatever the case may be, most people you ask to do some work for will feel much better about the exchange compared to a straight ask for money. Sure, you can offer to pay an attractive interest rate in exchange for borrowing money. But it’s just not the same.
Your relationships are extremely important. Never jeopardize them by asking to borrow money. There are plenty of other ways to get rid of your financial burden!
Suggestion: If you’re looking to borrow money, consider getting a personal loan through Credible. Credible is a lending marketplace where lenders compete for your business. You can get real, pre-qualified quotes in just 2 minutes. It’s free to sign up and see what you can get. Rates have come down. Just remember to borrow responsibly.
Readers, what are your thoughts about asking to borrow money from friends and family? If you have done so, what was the reason? What are some other downsides of asking friends and family for money? Are there any better ways to pay back debt or handle your business?