Most Borrowers Overestimate Their Ability to Repay

Most people borrow money far overestimating their ability to repay it. So when a friend says they’ll pay you back on New Year’s Day, don’t take it at face value—prepare for the possibility that you won’t see the money for at least six months.

1. Set a credit limit based on how well you know the borrower and your read of their character. Usually that means lending a few thousand for emergencies, with a higher ceiling for close friends.
2. Once you lend the money, treat it as an act of trust—believe they’ll pay you back, and don’t set a repayment deadline.
3. If they don’t pay you back and ask to borrow again, blacklist them socially and write off the loss as spending or stock-market losses (as noted above, keep the limit within what you can comfortably absorb).
4. Cap your total outstanding loans overall, except for a handful of family members or childhood friends who get an explicit pass from your usual rules.

Remember to charge interest when they pay you back—your money could’ve been earning returns in Yu’e Bao otherwise.