We’ve all been there, the weekend is rolling around and plans are being made rapidly in your group text. Before you’ve even had the chance to respond, plans have been made on your behalf; dinner and drinks at an upscale tapas restaurant that just opened. You know you can’t afford to spend that much money, but everyone knows that it’s taboo to talk finances with friends. Not to mention the well-intended, but anxiety inducing, guilt trip that is likely to follow if you try to address it.
Your friends just want to spend time with you, but can’t relate to your financial situation.
There are many reasons why you and your social circle might be on different pages when it comes to spending money. Maybe you’re a diligent saver who’s happy to spend money having fun, but only in a fixed amount that you carefully calculated. Maybe your friends are deferring their days of saving money for some future version of themselves (strongly not recommended). Or maybe there is a large financial gap when it comes to salaries among your friend group.
Whatever the reason may be, these can be tricky waters to navigate. You don’t want to be the one always turning down a good time, especially when you can’t communicate your reasons successfully. So what can you do to keep your friendships alive while also sticking to your budget?
Know Your Limit
Start out with a simple exercise to calculate just how much discretionary income you have each month. Discretionary income is simply how much money you have left each month after accounting for all necessities (food, expenses, housing, utilities, savings, etc.) and taxes. Let’s say you bring in $3,000/month after taxes.
You’re a diligent saver, so you stash away 30% ($900), and the rest of your expenses total $1,350 per month. This leaves you with $750 in discretionary income. This is the money you have to work with and delegate where you’d like to spend it. It is important to know this number, because without it you’re just swiping your credit card and hoping the math works out at the end of each month. Not a great approach.
The number you calculate might be eye opening for you (in either direction) and that’s OK! If it’s much less than you expected, now is the time to do something about it rather than months or years down the road when the problem is too far out of hand. If it’s much higher than expected, go buy yourself something nice and enjoy it!
For most people, the problem comes from the former not the latter. If that’s the case for you, the second step of this process is to identify areas where you can cut spending.
Cutting out the Fat
If your discretionary income was shockingly low compared to what you thought you could spend each month, you may need to make some cuts. You want to make cuts that are sustainable, so you need to strategize and cut selectively. In order to take this step, start by ranking your financial priorities in order of their importance to you.
Be sure to assign a rough dollar amount to each ranking. By organizing your finances this way, you can start evaluating where there might be room for cuts in the items you value least.
You want to avoid making cuts on your highest priority items, because those will be the hardest to stick with. Unless your list exposed some low-hanging fruit at the top that can be eliminated, your focus should remain further down the ranks.
For example, maybe streaming services are at the top of your priority list and you subscribe to Netflix, Hulu, and Spotify, totaling $40 each month. Could you sacrifice the paid version of Spotify and save $10/month? Maybe you have both Hulu and Netflix, but 90% of your time is spent watching Netflix? In either scenario, you have to decide for yourself if you can eliminate a bit of redundancy and save $10/month.
Make sure to spend some time with the bottom half of your list, and really dig in to see where you can uncover some extra cash. As you evaluate each item, ask yourself “Is this something I really need to be spending money on every month?” Not every item will be a ‘must-have’ for your situation.
Some of the items on your list will be scalable, meaning you can tamper down how much you spend on them each month instead of eliminating them entirely (coffee is a great example of this). You might uncover areas where you can bundle and save (did you know Spotify Premium comes with a Hulu subscription yet most people pay for both?).
This method is the quickest and most effective approach to help you stay with your monthly budget. However, if you’re not willing to sacrifice enough in your current spending habits, keep reading because the next section might have the answer you’re looking for.
Supplemental Income Generation
Now that you’ve calculated your discretionary income and ranked your financial preferences, maybe you’ve discovered you need to make more money to have the life you want. Many people write this idea off from the start, but the reality is there are plenty of options out there to bring in some extra cash. How much supplemental income you need will determine what options are available.
If your preferred additional income is minimal, you can find ways to bring in a few extra dollars by optimizing your savings account. High interest savings accounts are the quickest way to earn a few hundred extra dollars per year.
That doesn’t sound like much, but it can cover the aforementioned subscription services so that you can stream your music and TV guilt-free. These savings accounts are worth looking into, even if your needs are larger. They can be a very powerful financial tool over the long haul of your financial journey.
Have you calculated that you need a rather substantial source of additional income? One approach that is becoming more popular by the minute is the concept of creating a side hustle. The beauty of side hustles is that they are extremely flexible and that they have the ability to scale your return on investment depending on how much time you’re willing to dedicate.
Now, there will often be a tradeoff of time invested vs. money made, but business ideas are everywhere you look. Something as simple as charging those electric scooters that almost run you over on the sidewalk everyday might bring in a couple hundred dollars a month. BOOM, bring on the bottomless mimosa Sunday brunch ritual with friends.
Become the Planner
An alternative approach you can take to keep your current spending habits is to become the planner of your friend group. If you take this route, you can have a little more say in the amount of money being spent on your social gatherings.
This gives you the power to promote cheaper (sometimes even free) ideas for your night out. Get creative with your ideas; you will need to tailor them to fit the typical activities of your group in order for them to stick. Below are some ideas to help get you started:
- Find the best local happy hours
- Free/discounted local events (street festivals, tailgating events, etc.)
- BYOB ‘Game night’ at home
- BBQ and bonfire
Struggling to stick with a budget is something that almost everyone has to deal with. Hopefully this post has given you some ideas on how you can maintain your current social life while also staying on pace financially.
One final piece of advice, always get that drink order in before happy hour ends!