One of the most difficult things when handling money is dealing with your friends and family. You may be making more or less and feel like you either have to cut back or spend more to keep up. You might be working on building your finances, but don’t want to seem like a cheapskate. How do you handle the sticky situation of lending to a friend?
I wanted to compile a small guide to handling those circumstances.
How To Tell Your Friends That You Need to Cut Back
Nobody wants to ruin plans by being the ‘broke’ friend. You have friends that want to go out constantly or they have extravagant trips. It’s hard, but killing your finances is not a solution.
My first piece of advice is being honest and open with your friend. It’s not about keeping up appearances. If you really enjoy someone’s company, but can’t afford to keep up, communicate clearly. If you feel embarrassed, then use a financial goal that you’re working towards as the ice breaker.
“I really enjoy going out with you, but we’re saving up for a down payment on a house, so we’re cutting on some things. Do you mind if we go out once a week/month?” For some reason when you share your goals, it helps.
Set Up a Schedule
If you’re not comfortable saying that you need to cut back, then I suggest that you set up a schedule for when you can go out. Focus on positives and you’ll feel a bit better saying no to go out too frequently for your budget.
Take Up a Hobby
I also found that if you take up an affordable hobby such as drawing or learning an instrument, you can devote your time to a creative outlet AND have an excuse not to go out to spend money.
“I’d love to, but tonight is my guitar practice night. I’m trying to stick to it, but maybe we can go out Sunday?” Or you can suggest that they can come over after they finish.
How to Use Peer Pressure in Your Favor
Besides cutting back on expenses, you may want to build some savings. How can you include your friends in on it? A plus for involving your friends with your financial goal is that setting a goal in public adds accountability.
- Can you guys create a ‘no spend’ day once a month? Don’t rent a movie, just have friends over for games or a movie you already have.
- Have a potluck instead of going out every time.
- Have a group goal of saving for something. Your friend may want a new video game console and you are saving for an emergency fund. Support one another and come up with solutions to socking the cash away.
I think if your friends have a hard time supporting you, then you may want to ask why. Are they really your friends or are they people that you just want to impress?
Lending Money to Friends
I’ve already laid out reasons why I think it’s a bad idea, but if you’re going to loan your friend some money, please protect yourself as much as possible.
Have It All in Writing
Avoid any confusion or miscommunication by stating the loan amount, the due date, and the payment plan. yes, a payment plan. You’e more likely to see your money again if you treat this professionally.
If they object to this simple request, then you may not want to give out a loan. You’re probably giving them a better deal than any bank would and you’re willing to work out a manageable plan, so what’s their problem?
This may seem tacky for some, but if you’re loaning a decent amount of money, I think you deserve to how they’re using the money.
Remember this is standard practice when receiving a bank loan. Having this information can help you determine if this is something worthwhile or just frivolous.
How would you feel if your friend borrowed $2,000 of your hard earned and used it to upgrade their vacation or buy a jacuzzi. It can cause a lot of hurt feelings and anger when you loan money, so please be careful.
Lending Club as an Option
In fact, if you want to make it official and maybe reduce your financial obligation, you could suggest that they use Lending Club. They can apply for a personal loan and other can contribute to the loan amount, not just you. You’ll also have paperwork done for you.
Lending Club can look at their finances and see if they are financially able to handle the loan. Sometimes having a 3rd party can help you see objectively. You can tell them that you will be contribute to the loan (don’t promise more than you can give). If they claim they’re not interested, you can determine if that’s a red flag for you to not loan.
No Loan Options to Consider for Friends
If you’re looking for other options though, here are some suggestions.
Your Thoughts on Friends and Finances
If you discuss money with friends, what topics do you usually cover? Have you and your friends been able to support each other with improving your finances?
Photo Credit: Juliana Coutinho