Real friends help us celebrate the good times, get through the bad, and make everything we do a lot more fun. But that doesn’t mean that all friendships are good for our finances – not by a long shot.
Most of us have at least one friend who always pushes our financial limits – whether they know it or not.
But it’s not always because they mean you harm, the experts say. Sometimes your friends just don’t know any better. Other times, it’s because they’re awful with money themselves.
7 Costly Friendships to Watch Out For
Whatever the cause, it’s crucial to watch out for friends who would bleed you dry if you let them. I reached out to several financial advisors to learn the type of friendships you should watch out for when you’re trying to save money and avoid costly mistakes. Here’s what they said:
1. They go out four nights per week, and want you to come, too.
Have you ever been friends with someone who goes out constantly – to the tune of hundreds of dollars spent on concerts, shows, and booze? If so, you should watch out, says Seattle Financial Advisor Josh Brein.
“Just because your friends can afford to go out several nights a week and spend hundreds of dollars on entertainment and dining out, it certainly doesn’t always mean you can,” he says.
According to Brein, these types of relationships are rife with social spending pressure that can be a major distraction from your financial goals. If you fall into the habit of going out when you don’t really have the money, you could fail to reach important financial milestones – or worse, rack up credit card debt.
If your friendship is solid other than their penchant for nightlife, you don’t have to cut them off altogether, he says.
“Instead of never going out again, decide how much room you have in your budget for entertainment and dining out and give yourself an allowance to spend every week or month that will work for you. If you can stick with it, you’ll be more likely to keep your jet-setting friends by joining them at least sometimes and have enough saved for a rainy day as well,” says Brein.
2. They sell financial products, and expect you to buy.
“Everyone has at least one friend in their social circle who will misuse their social capital to sell financial products, says Bismarck Financial Planner and host of Retirement Starts Today Radio Benjamin Brandt.
Most of the time, they want to sell you whole life insurance, an annuity, or some other financial product that pays them a huge commission. But, should you say yes?
If you don’t want to buy, then absolutely not.
“Your friends that dabble in financial products and insurance could ruin your financial life,” says Brandt.
“Acting on a friend’s hot stock tip or caving to pressure from a friend on an expensive life insurance policy could have lasting consequences in your financial life,” he says. “Stick with qualified, credentialed professionals for your financial advice, or wind up with a financial mess and one less friend!”
3. Your friends mooch because they think you can afford it.
We’ve all got those friends who let you pay because they think you can afford it. According to Alex Whitehouse of Whitehouse Wealth Management, these friends rely on your wealth to have fun because they believe you’re financially better off than they are.
Even if this is true, these friends can be a drain on your finances, says Whitehouse.
“To deal with moochers, communicate expectations ahead of time,” he says. For example, ask for separate checks when going out to dinner – or make clear how the bill will be split before you enjoy any activities together.
“It’s always better to have a clear conversation than to let the behavior impact your friendship.”
4. Your friend borrows money with no intention of paying it back.
What’s worse than a friend who always lets you pay? The friend who lets you pay then acts like he’ll pay you back. These friends always promise to “catch you next time,” only to avoid every bill like the plague. Over time, maintaining this type of friendship can be extremely costly. Not only are you paying for your fun, but you’re paying for their fun, too.
“Beware of the friend who always promises to pay you back, but never seems to,” says Whitehouse. “After borrowing a few bucks, they go radio silent until enough time passes that the loan is presumed forgotten.”