Neither A Borrower Nor A Lender Be.

510696268Neither a borrower nor a lender be.
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.

Polonius from Shakespeare’s Hamlet, Act 1

I don’t normally quote Shakespeare and I did not stay at a Holiday Inn Express last night, however I did take a Shakespeare course at Rutgers years ago, and I remember this important quote. That Willie S fellow was one smart dude. If more of us heeded his financial advice, we’d be better off. I’m a frugal sort, so this advice rings particularly true for me.

The lender part is kind of obvious. Unless you’re a bank or a financial institution of some type (and we all know how much we love them) you have no business lending money. Want to help out family or a friend? Just give them money with no expectations. That’s right, just give it away, since there’s a fair chance you won’t be repaid, and your relationship will never be the same if it’s not. Isn’t it strange how we feel a bigger obligation to repay faceless financial institutions than our own friends and family? It’s true. So never, ever, ever lend money to a friend or family if you hope to see it back again. Just give it to them. And if some of it comes back some day, that would be swell and a bonus.

The borrowing part is a little trickier. Buying a home is usually impossible without a mortgage, at least earlier in life. But mortgages and home ownership are what got millions of Americans in trouble. “No doc” loans of last decade with interest only payments came crashing down on many people who based their planning on the assumption of flipping their home for an even more expensive one as they increased their wealth. We know how that worked out. Foreclosures are still a fact of life. And my Garden State leads the nation in foreclosure rate. (Is that part of the “Jersey comeback”, Guv?)

So here’s my advice in a nutshell:

1. Lending—fuggetaboutit. Just don’t do it

2. Borrow—Borrow very cautiously and very modestly. If you’re a home buyer, put down a big chunk—1/4, 1/3 even a 1/2 of the total if you are able. Can’t afford it? Then don’t buy the house. Even with historically low mortgage rates, don’t saddle yourself with payments you have to stretch to afford.

whimpy3. Credit cards—In the hands of those of you (and there are many) without fiscal constraint, they can be heroine. Here’s a simple thought–don’t use credit cards to fund your everyday expenses. Use good old fashioned, analog cash. Why? Because the average Joe spends more on a credit card than if they paid cash. You think twice when cash is involved and spend more frugally. Sure a credit card is handy when you have an expenditure of hundreds of dollars. But do you really need a credit card to buy a hoagie or a cup of coffee? If Wimpy had some cash in his wallet, he wouldn’t have had to beg for hamburgers today with a “promise” of repayment on Tuesday.

And for god sake, pay off the high interest balances on your cards as fast as humanly possible. Using your credit card(s) as a bank is incredibly stupid, and creates serious financial issues for many.

My overall guidance at any age or economic strata, is simple:

Live Within Your Means

Wherever you are in life, spend a little less than you are able to. Why? Because none of us know what the future holds—for our lives, careers, health or circumstances.

Anticipate a financial “rainy day”. Because in each of our lives it does rain on occasion. Unanticipated expenses. Layoffs. Poor health. Stuff happens to all of us. Too often I see those, in every economic strata, get in trouble because they assumed their income would grow only to be faced with a harsh reality check. That’s doubly important for those on the “back nine” of their careers. The cruel reality is that white collar layoffs often (and sometimes appropriately) target those in senior roles whose salaries may have outstripped their corporate value. The chances of finding another senior role replacing their max earning wages are not great. An adjustment of salary expectations (and personal expenses) is then appropriate. If one is over-leveraged on a personal basis, this is a prescription for big trouble.

But at any age, you are wise if you spend frugally, save aggressively and live a little below your means. If you do, you’ll sleep well and will have plenty of dough in your latter years (which may be far longer than you thought).

Neither a borrower nor a lender be”. Damn good advice. Thanks, Willie.

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