When and How to Give Advice

Rule 1: Give advice only when it's asked for. I have made the mistake of offering advice ... very good advice ... to people who weren't ready or willing to listen to it. As I was giving the advice, I looked into their eyes and realized there was zero chance they were going to pay attention to what I was saying. I thought to myself, "This person has no idea how valuable this could be to him."

Rule 2: Give the same good advice only once. I have friends and colleagues who are perennially in money trouble, and to whom I continually explain how to get out of debt and develop wealth. This is a foolish habit of mine. If you give someone good advice and he doesn't listen to it the first time, it is better to say nothing from then on. Just nod sympathetically when he tells you, every time he sees you, how life has screwed him.

Rule 3: Make everyone but close friends and relatives pay for your advice. Countless psychological studies have proven that people don't value things they get for free. If you want people to listen to your advice, charge for it. If you want it to be taken as seriously as it should be, charge a lot for it.

When and How to Give Money

Rule 1: Don't give anyone but close friends or relatives money for free. You will almost always regret it. I give away hundreds of thousands of dollars every year, and it is almost all wasted. It is wasted because the receiver almost never invests it wisely. Easy come, easy go. That's the way it is. I continue to give away money because I can't help myself. It seems worth it to me, because every once in a while - maybe 10 percent of the time - it is invested wisely.

Rule 2: If you do give away money, don't expect it to be used wisely and don't expect gratitude. More often than not, you will create resentment in the heart of the receiver.

Rule 3: If a friend or colleague has a good business and needs a loan, extend him one - but only if (a) you think it's a good investment on an arm's length basis and (b) you are willing to charge him an arm's length interest rate on the loan.

Rule 4: An arm's length loan has a written contract, terms, and collateral. Be satisfied with all three before you lend the money.

Rule 5: Realize that even though you have the power to seize the collateral if your friend or colleague reneges on the loan, you may not want to do that, because it might end the relationship. Figure out beforehand which is more important - the return of your loan or the continuation of your relationship. If the latter, be prepared to lose everything without resentment.

By Michael Masterson

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