Don’t Let Friends Derail Your Finances

Over the past few years, Meghaan Lurtz has had to turn down two destination bachelorette parties for dear friends. She was in graduate school and didn’t have the money to go.

“It felt really crappy, because these are people that I know and I love and I care about, and I absolutely wanted to be there,” she says. “But finances are what they are. You have a budget, and budgets have restraints.”

Lurtz is the president-elect of the Financial Therapy Association. She’s counseled people who’ve been in similar situations and said yes to both the pricey activity and, in turn, credit card debt.

After all, it’s hard to turn down fun with friends. But that fun can add up, as buddies expect you to shell out for group vacations or smaller expenses, like dinners, drinks and concerts.

Here’s how to determine whether you’re spending too much with friends and, if so, fix your finances without hurting your relationships.

Reflect on your — not your friends’ — finances
First, recognize that everyone has a unique “money mindset” that shapes financial decisions, says wealth psychology expert Kathleen Burns Kingsbury, author of the recent book “Breaking Money Silence.” Income and savings certainly play a part, but so do our upbringings, personalities, cultures and values. “What’s important to you and how you spend your money might be different than your friends,” Kingsbury says.

» QUIZ: What’s your money personality?
So resist giving the side-eye when your friend goes for those $600 boots — that’s her decision and her money. Instead, “try to come up with your own philosophy around money,” Kingsbury says. Determine what’s important to you — traveling the world, paying off your credit card debt or buying a home, for example. Then prioritize accordingly.

Kingsbury suggests scrutinizing last month’s credit card and bank statements to make sure your spending aligns with your priorities. Aim to get a broad sense of where your money is going and whether you ought to adjust your spending habits.

For example, you may want to course-correct if you spent $500 at the bars but put $0 toward that home you’re saving for. Creating a budget, if you don’t already have one, will help.

Spend less money (not time) with friends, if needed
Say you realize you’re overspending on social activities with friends. This problem is pretty common, Lurtz says, and it’s often driven by FOMO — the fear of missing out. You may say “yes” to every pricey dinner or group trip, for example, even though your budget screams “no.”

Remember that the point of these outings is likely more about spending time with friends than it is about eating or vacationing, Lurtz says. “So, if you can be with the person in a less expensive way, do it,” she adds. Here are a couple of strategies:

Use cash. Participate in the activity, but leave the plastic at home and bring only the amount of cash you feel comfortable spending. Unlike swiping a credit card, handing over cash feels more substantial and forces you to use “mental accounting,” Lurtz says.
“Believe me, you’re less likely to buy a round of shots for all your friends when you only have a $50 bill in your pocket,” she says. And you still get to hang out. “You’re out there, you’re going, but you also have the pride in knowing that you prioritized your goals.”

Focus on the friendship. You can always pass on activities you don’t want to spend money on. Fight that FOMO by spending time with friends in a different way.
For example, skip the $100 dinner with your crew and grab a $5 latte with those friends the next morning. “You’re honoring the friendship” and showing interest in spending time together, Kingsbury says. “But you’re coming up with an alternative for the connection they’re trying to have with you — at your spending level.”

Discuss money with friends
When you pass on an activity, thank your friends for the invitation and give them plenty of notice. Be honest about your financial priorities and respectful of theirs, Kingsbury says. Rather than complain about their expensive tastes, explain that you’re trying to save for a home, for example.

An open talk about your financial goals — and your friend’s, if she’s up for it — does more than lessen the blow of a declined invitation. It can help you become better friends.

Discussing our money and values, Kingsbury says, “increases intimacy and helps us understand where the other person is coming from.”

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The article Don’t Let Friends Derail Your Finances originally appeared on NerdWallet.

Setting a Realistic Budget

Do you have a household budget? If you’re like most Americans, chances are you don’t. A Gallup poll  last year revealed that just one in three Americans prepare a household budget.

However, a budget plan is one of the most important things you can give yourself. It helps you to know where your money is going, helps with savings or other financial goals and it simply keeps you on track so that you don’t spend money you don’t have.

Unfortunately, people who do have budgets often don’t stick to the plan but instead simply have a wish list of how they want their finances to work while they continue spending unrealistically.

So how do you create a realistic budget that you can live with?

The first step is to track your spending. You already know how much you spend on utilities, mortgage and insurance but what about smaller expenses? For a month write down every penny you spend. Five dollars for lunch and thirty for gas add up pretty quick so it is necessary to be realistic about all of your daily expenses. At the end of the month, add up how much you spent.

Now sit down and make a list of all your expenses. It can be a handwritten list or some kind of worksheet on the computer.

Simply fill in the amounts and add up your month’s expenses. Are they more or less than your income? If they are less than your income that’s great! That means you have extra money to save, to dedicate toward debt payoff or to spend.

If your expenses are greater than your income, it is time to look at cutting expenses. Think about extras that you don’t really need like premium cable or a land line that no one in the house uses. Also look at major expenses like car insurance. Can you get a cheaper rate? How much money are you spending in restaurants or on recreational shopping? Are you wasting a lot of food at home? Maybe you are overbuying for your family?

Here are a few other things to keep in mind.

One of the most powerful ways to free up money in your budget is to pay off debt. Credit card bills, student loans and other types of debt may seem impossible to move past but making debt pay off a priority in your budget will help you stay on track and see how it is possible to dig yourself out of debt.

Give yourself a little wiggle room in your monthly budget. For those categories that fluctuate, like your water or electric bills, build a little extra into each month so you are not caught off guard. Also try to anticipate irregular expenses. You know your child’s school takes portraits every November so budget for that expense in November. Instead of trying to pay for all Christmas expenses at one time, tuck away a little into savings each month. A VCNB Christmas Club is a great way to do that!

And of course, build a safety net by saving something every month. Most experts recommend saving at least ten percent of your earnings. If this isn’t possible, just save whatever you can – even if it’s just five dollars a week.

Having and sticking to a budget will help you know where your money goes and will help you live within your means. These acts will eventually help you create a nest egg and pay off debt. Want more information on budgeting? Visit Consumer.gov.

 

 

Talk To Your Teens About Money

Last week we talked about teaching young children about saving and managing money. It tends to be easy when they’re little because you can just tell a young child that saving money is important and that they must do it. But what about your teenagers? They are still kids but are nearing adulthood and all the financial decisions that come with it.

Here are five topics to start with!

Talk About Credit – Teach your kids the difference between good credit and bad credit. Talk to them about the difference between borrowing responsibly to buy a house and spending wildly with a credit card. They will soon be bombarded with offers for shiny new credit cards with enticing offers. Talk to them about how to use credit cards wisely – spend only what they can really afford, pay off the balance every month and pay on time.

Teach teens to use technology for banking, monitoring their credit score and even budgeting!

Teach teens to use technology for banking, monitoring their credit score and even budgeting!

Budgeting – Does your teen have an after school job or an allowance? Talk to them about how to budget those funds and plan for the future. Are they saving for college or for a new car? Are they blowing all their money on new music and fast food? Help them set up a budget for their money by identifying their expenses and savings needs. Then list their income and help them prioritize how to spend and save that income.

Daily Tasks – Involve your teens in household tasks that involve financial decision making. Teach them how to write a check and how to balance a checkbook. Show them around your online bank account, let them schedule your bills through Online Bill Pay and talk about the expensive damage caused by late payments. Take them grocery shopping and explain why you buy the cereal that’s on sale and why you typically buy ground beef instead of steak. Teach them the basic daily skills they will need to survive adulthood.

Pay Yourself First – Talk to them about saving money and why it’s important. Teach them to make it a priority to save a little bit from their allowance or their paycheck every single week. “Pay yourself first” is a powerful mantra that will make saving automatic. Just ten percent can add up quickly and can build a nice nest egg for emergencies, a down payment for a car or living expenses for their college years.

Credit Scores – Talk to your teens about the correlation between a credit score and spending habits. Talk to them about how their credit score will impact their borrowing ability in the future. Carrying an excessive credit card balance and paying bills late now and then may not seem like a big deal to a teenager. But these behaviors will affect their borrowing ability, determine future loan rates, affect their ability to rent an apartment or insure a car and ultimately affect the affordability of these things they need and want as adults. Reinforce the idea that paying bills on time, paying off credit cards every month and making good financial decisions will increase their credit score.