In order to produce the podcast and keep content up free for you, I work with partners so this post may contain affiliate links. Please read my full disclosure for more info.

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.

Working on building your finances, but don't want to seem like a cheapskate? Let me offer some tips to deal with these sticky situations.

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.Learn how you can navigate all those tricky situations with friends and money. such as lending money or cutting back on nights out cause you're paying off debt.

Communicate Clearly

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.

Embarrassed? Use a financial goal that you're working towards as the icebreaker.

“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

Now how about another potentially stressful situation – lending money to your friends.

There are plenty of ways it can cause tension between you two.

Here are are a few things to consider:

Is this an unexpected emergency? Is this something that they could've planned for? Did they have any savings beforehand?

Do they have a plan to quickly pay you back or is it ‘as soon as I can'?

How would you feel if your friend borrowed $1,000 of your hard earned and used it to upgrade their vacation?

Loaning money can cause a lot of hurt feelings and anger when it goes south, so please be careful.

If you do decide to loan to your friend, make sure you protect yourself and them.

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're 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.

Sounds harsh? Think about it this way – you’re probably giving them a better deal than any bank would.

Plus you’re willing to work out a manageable plan that will have your money back without breaking their budget.

What if they want to skip the paperwork because it's between friends?

Really think it through.

This may be something you pass on. You're not the bad guy. You just can't risk your finances without having something written down.

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 the 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.

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.

  • Give a gift. Don’t loan them money, just give a little something. How much? My guideline is never give more than what can you afford to lose. We’ve given amounts that haven’t damaged our budget with no expectation of getting it back. It’s a free and clear gift.
  • Be specific with your gift. Perhaps just giving money will only mask the problem, so you may want to give a gift card for their specific need.
  • Offer to help them with budgeting. You don’t have to look at their numbers, perhaps you can share your budget spreadsheet.
  • Just say no. It hards to do, but sometimes it’s the best way to wake them up to their financial problem.

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 by improving your finances?

About Elle Martinez

Elle Martinez helps families at Couple Money achieve financial freedom by sharing tips for reducing debt, increase income, and building net worth. Learn how to live on one income and have fun with the second..

4 comments add your comment

  1. I really didn’t talk to friends about money much before attending Financial Peace University. After that (and I started blogging) it is a common topic.

    I like that money doesn’t have to be a taboo topic. Of course, it’s easy because we’re probably mostly in the same financial shape which is why no one needs to borrow money. That would be hard and awkward.