This article was originally published on Business Insider.
This as-told-to essay is based on a conversation with Kevin O’Leary. It has been edited for length and clarity.
I’ve been asked countless times about what to do when family members come looking for money. It’s a very complex issue because you don’t want to disvalue your brother, sister, or cousin.
But when it comes to mixing family and money, it’s often a bad outcome. My extended family comes to me for money all the time. Through much trial and error, I’ve developed a very simple strategy. Ultimately, it’s the only way I would recommend approaching this situation — it’s really the only way to do it.
I only gift and never loan
I don’t want to loan anybody money. I don’t want anyone to owe me or to drive a wedge in my family. So, instead, I’ll agree to a one-time gift.
For example, if a family member asks for $150,000 to start a restaurant, I’ll give them a $50,000 gift that I never want back.
I look them in the eye or give them a handshake to solidify a contract between us that I’m giving this money and that they will never, ever ask for more — they can never come back looking for more money ever again. I also make them promise to never talk about the gift again.
I do this because expecting a family member to pay you back is a real issue. If they’re already in a bad place, why would loaning them money help them if next week you expect back payments? That’s just not the case, and it’s almost never the case.
Instead, call it what it is — a gift. I’m happy to give that gift. I feel good about it, and I understand I’m never going to get it back, and I never intended to. Make it a generous one and make it the last time.
This approach has caused some problems. But if the family member tries to ask again, I remind them of our contract. Frankly, it’s still a better outcome than any other I know. Here are four reasons this is the best way to handle money and family.
1. Money breaks up families
Money issues and financial stress are common reasons marriages break up. The power of money needs to be respected. My extended family keeps getting bigger and bigger, and the more money you have, the more problems you have — that’s the bottom line.
Loaning money to each other is not what keeps families together.
2. You can’t make everyone happy
If you try to take care of everyone in your circle, it only becomes ever-expanding. It’s impossible to take care of that many people, and it will generate a lot of friction and negative feelings.
So stop trying. You can’t do it. It’s not how life works.
3. Entitlement is a disease
Something I learned from my mother decades ago is that entitlement is a curse.
If you guarantee someone that they never have to take risks, they never do. They never do anything because they don’t have to. They take the path of least resistance to a life of mediocrity. And I really think that’s a horrible outcome for any human being. So I don’t want to hand loans to the people I love.
4. I’ve earned my freedom
I’m very fortunate, and I’ve said this so many times — and I believe it today more than ever: The reason you pursue entrepreneurship is not for the greed of money. It has nothing to do with it. It’s the pursuit of personal freedom. And that’s why it’s so valuable that you sacrifice so much in your early years to build freedom in your later years.
The whole idea is that you could spend your time doing whatever you wish because you’ve earned that freedom. And that’s certainly how I live my life today.
I look at every 30-minute block of every day. And if I don’t want to do it, I simply don’t do it because I don’t have to. I want to do meaningful things that mean something to me and have an impact on others.
But if it’s a waste of my time, I don’t waste it. Time is my most valuable asset, and it just becomes more precious every day. Don’t listen to the noise competing for your energy and time.
I’ve seen the benefits of this approach in my own children
My children have been very successful in their careers because they realized there’s no free lunch. They decided on their own to pursue careers because they were not entitled.
I stand by my approach and really don’t think there’s a better way out there.