By Stefanie O'Connell
This post originally appeared on LearnVest.
Just three weeks after graduating from college in 2011, Erin Lowry finally had the chance to do what she'd been fantasizing about for years.
She packed up her life in the small college town of St. Bonaventure, N.Y., and relocated to the big city—quickly landing a gig as a page for "The Late Show With David Letterman."
Unfortunately, her dream job didn’t quite come with a dream salary. So to make ends meet, she supplemented her income with side gigs—working 25 hours a week as a barista at Starbucks and babysitting for multiple families on nights and weekends.
In an effort to stretch her limited income—and avoid draining her nest egg—Lowry also focused on living frugally, following a strict budget and taking home Starbucks leftovers at night.
Lowry's carefully constructed game plan was going well. That is, until she agreed to attend a friend’s birthday dinner. As is often the case with big group gatherings, partygoers wanted to split the check evenly—and Lowry hadn’t budgeted for the expense.
“I was living quite hand-to-mouth, so I would scout menus at a restaurant, find the cheapest item I could get away with ordering, and abstain from any drinking,” Lowry says. “At that birthday dinner, people declared that we owed $50 each, but I'd only had a $10 appetizer.”
Lowry was faced with a conundrum: Engage in an awkward “I can’t afford it” conversation in the middle of her friend’s joyous celebration, or cough up the cash in order to save face.
Fortunately for Lowry, a friend's boyfriend asked people to contribute their fair share instead, but the damage was done. "After that, I started to avoid birthday dinners unless I knew a majority of the people in attendance or that I'd only be on the hook for my meal and a portion of the celebrant's dinner," she says.
If you've found yourself in a similar situation, you're not alone.
It turns out that many people (78% of Millennials, to be exact) feel the pressure to keep their spending in line with their friends', according to a 2013 study from the American Institute of CPAs and the Ad Council—even if it's at the expense of their own financial well-being.
In fact, a 2013 CouponCabin survey found that nearly 10% of those polled actually went into debt just to attend someone else's wedding!
Translation: Americans seem to be getting a bit too comfortable with the idea of going into debt simply to avoid social awkwardness and keep up appearances.
It's a trend that, as in Lowry's case, has the potential to torpedo even the most airtight of budgets, but there are ways to approach such predicaments with grace and aplomb—and help prevent your social calendar from plundering your hard-earned cash.
The Dos and Don'ts of Reining in Social Spending
The annual golf trip with the guys. A Sunday brunch gathering. Your high school reunion. Regardless of the social event that's giving you financial agita, Natalie Taylor, a CFP® with LearnVest Planning Services, says it's important to keep one thing in mind: Only you can decide which social commitments you can realistically afford to meet.
And one of the best ways to know what you can truly afford is to create—and stick to—a budget that prioritizes long-term goals (debt repayment and savings) and fixed monthly expenses (rent and transportation costs) over any cash you can spend on non-essentials ... like that golf outing.
"By using this type of one-number strategy to build your budget," Taylor says, "you not only help set yourself up to make consistent progress on your goals, but you should also be better prepared for those unexpected social expenses that can pop up, because you're free to spend the money that's left over each month after covering bills and other financial priorities any way you like."
So if a fun, last-minute opportunity arises—and you have enough flexible spending cash that week to pay for it—you can indulge guilt-free. "Or if it's a larger expense, like a trip with friends," she says, "this method encourages you to set aside a little cash each month in a separate savings account for 'non-monthly expenses,' so you'll have the funds ready to go without busting your budget."
Of course, knowing how much cash you can afford to burn on non-essentials is only half the battle.
Once you've determined that you really can't swing those pricey concert tickets your friends can't stop talking about, you're left with the tricky task of bowing out—a to-do that Kate Holmes, founder of Belmore Financial, LLC, in Nevada, says her clients dread the most.
Her advice? Rather than decline an invite with an “I can’t” or “no”—which can be misconstrued as a personal affront—Holmes tells clients to use her as a scapegoat by declaring, “My financial planner says I can’t afford it!”
When you're being tempted or guilted into spending, “having an expert in your corner can help friends and family members understand the situation from an objective perspective,” Holmes explains.
Plus, jeopardizing your own financial well-being has the potential to affect them too. “Whether it’s your health, time or money, we’re not good to anyone else if we’re not good to ourselves,” Holmes says. “If there is an emergency, we won't be in a position to help if we haven’t even taken care of ourselves.”
Bottom line: Do whatever it takes to stand your spending ground—point fingers at your financial planner or suck it up and be the bad guy yourself—because prioritizing your fiscal health can leave everyone better off.
That said, no one wants to live a lifetime of “I can’t afford it.” So how can you work on balancing all of the invites that seem to sneak onto your social calendar with your budget's limitations?
Hint: Try automating your social spending.
Fun and Finances: The Secret to Social Budgeting
To determine which social requests are really worth your cash, Holmes recommends asking yourself a couple of key questions: “Will this event or expense contribute to my long-term goals, such as career success or personal happiness? Or does it perhaps provide a much-needed break from all of my hard work as of late, like a cocktail with the team after submitting a huge project?"
If the answer is yes to either, then go for it!
But before you do so, Holmes suggests reviewing the last few months of your spending, so you can tally up how much you've shelled out for social expenses, like those weekly karaoke nights with friends. If the exercise leaves you wishing that you'd put that money toward financial goals instead, such as paying down your debt or upping your retirement contributions, "you should probably say no to future invites," Holmes says.
For upcoming celebrations and events that sit squarely in the "yes" pile, some simple financial planning can help you accumulate enough cash to enjoy the experience—guilt-free.
"I recommend putting 10% of the cash that you earmark for weekly flex spending (read: fun money) into a non-monthly savings account reserved specifically for social events," says LearnVest CFP® Hank Lobel. "While this might not cover 100% of your upcoming social event costs, it will help get you in the habit of setting aside money for them."
It's a system that works beautifully for Matt Becker and his wife, Casey, who live in Pensacola, Fla. When the couple was faced with one too many out-of-town wedding invites, they decided to open two savings accounts—aptly named "Travel" and "Gifts"—and then automated a monthly contribution into each of them, based on an estimate of how much they'd spent on each category over the past year.
So the next time that another wedding invite showed up in their mailbox, the choice was easy.
"If the money was in the account, we could go. If not, we couldn't," says Becker. "[The system] didn't let us take all the trips we would have wanted, but it took a lot of the stress out of the decision-making process."
But what happens if you have your heart set on attending a particular occasion, but your slush fund is running dangerously low?
For bigger occasions, like weddings or reunions, see if a friend is willing to share costs with you, suggests Lobel, such as buying a joint gift for a baby shower or sharing a hotel room if you're attending a destination wedding.
As for those smaller, last-minute spending opportunities—like your college buddy's spur-of-the-moment announcement that he'll be in town tonight and wants to grab dinner—even a few minutes of advance prep can help you sidestep a budgeting disaster.
"Decisions on where to eat or go out are often made right in the moment," Holmes says. "But if you do a little research ahead of time, you can suggest a reasonably-priced option or find a good deal for an awesome happy hour."
That certainly beats Lowry's old strategy of ordering the cheapest item on the menu and then praying that no one would ask her to contribute more than her fair share. These days, she's gotten the hang of preplanning for social gatherings by factoring a small buffer of cash into her monthly budget so she can cover unexpected celebrations—and actually enjoy them.
LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc., that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. Unless specifically identified as such, the people interviewed in this piece are neither clients, employees nor affiliates of LearnVest Planning Services, and the views expressed are their own. LearnVest Planning Services and any third parties listed, linked-to or otherwise appearing in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies.
