Asked for help - dangerous territory?

[vespito]

Hi all,

Has anyone helped out close friends with budgeting and cutting back?  If so, how did it go?  Was it appreciated?  If you helped out a couple - did one person resent any of your suggestions?

Evidently, wanting to retire early has made me the 'finance guy' amongst my friends and my wife's co-workers. I've helped a couple people roll over old 401k's into Vanguard and given very, very basic info on types of accounts and IRA's.

Very good friends of ours (who also live in our building) have asked me to help them with their finances.  While I am fine with offering basic info and help, I am a little wary of reviewing their budget.  I don't want someone saying "well, Vespito said you need to stop buying coffee every day".  Then I'm the bad guy who caused an argument/resentment.

Maybe tell them that if I help out there are some ground rules - they both need to be on same page to be successful, that cutting back does not necessarily mean denying yourself pleasure and that there is to be no arguing when someone spends too much money (it's going to happen, as it does to everyone once in a while).

They both seem committed to improving their situation so I'd like to help them out, but not at the risk of messing up a great relationship.

edit: grammar

[FLBiker]

Good question.

Here's my (limited) experience -- like all teaching / advice, it is important to meet people where they are and not try to change them.  I can tell them what I would do, but I shouldn't push.

For example, a friend recently asked me to help her decide what to do with an inheritance.  She wanted to invest it for a few years, before using it as the down payment on a housing upgrade and to buy a boat.  She and her husband have various debts and currently live in a perfectly fine house.  They both drive newish cars (w/ payments) etc.  My first response was "This is kind of out of my area of expertise.  I don't have a lot of 'short-term' investing experience --  if I were in your situation, I would pay off your cars, forget the boat / new house, and put the rest towards retirement."  But she wants a boat and wants to live on the water, so we talked about investment options that made sense within the timeframe she was talking about.

I think people only get resentful if you're trying to change them.

[frugalnacho]

You can always present them with the numbers and leave the choice up to them.  Vespito didn't say you have to stop buying coffee, but he did say taking that action would lead to $A/yr compounded at B% in this account giving us $C after D years potentially decreasing our career by E years.  Then their argument would be about each others choices instead of about you.

[Emg03063]

There are people that charge $400/hr for that type of service, ya know ;).  Key things in my mind:

1.  Have them bring you a prioritized list of goals (help them to define if needed).
2.  Point out the opportunities and trade offs, but don't make prescriptions.  I.e.  "If you ditch the coffee, you will get x% closer to your goal", not "ditch the coffee"

Alternatively, you could just help them craft a case study to post here, then they can get their face punches from anonymous people on the internet instead of from you.  Just joining the forum and making the posting forces them to have some "sweat equity" in the process, which is a good thing.  Or you could make them work through YNAB.

3.  Define your role and limits clearly.  You're there to offer financial advice, not to be their marriage counselor, parent or financial custodian.  They can argue about overspending all they want as long as they don't do it in your meetings.  The advice is there for them to take or leave.  You're not responsible for the results.

[galaxie]

I'd start with "what gets measured gets improved."  Get them to track spending for a while.  Then if they want to save more money, they know where the big bucks are going, and what the tradeoffs are.

You can also present information without making recommendations.  If they live close to work, you can go with, "On this early retirement web forum that I read, lots of people are saving money by biking to work and selling their cars." 

[socaso]

I've helped two different friends with their budgets. I only addressed what they brought up themselves (one just wanted grocery help, the other needed whole budget help) Both times it helped, they made changes, and they seemed grateful for the help.

[Misstachian]

Depends on the person. A friend asked me to help her with money some months ago, so we sat down over lunch (brought from home!) and looked over her budget and her reality. Every month she spends more than she earns and unsurprisingly, carries debt, which she wanted to get rid of so she could buy a house. She wanted to cut back, but couldn't seem to bring herself to even at the parts I thought would be a slam dunk. (When I looked at the numbers, I thought we'd have her out of debt in a few months. But, "Could you cut restaurant spending from $1200 a month? No? Um...")

She unfortunately wasn't able to bring herself to make real changes yet, but she comes over and uses me as her confessional when she overspends (and asks me not to judge her). I try very hard not to be the bad guy and tell her what to do and instead offer gentle suggestions (she really liked the idea of unsubscribing from sale emails from retailers) so as to avoid the resentment of which you speak. She's a little embarrassed around me sometimes when money comes up, but it's mostly been okay. I'm hoping that she'll eventually give it another go and we'll try again! She worries about it a lot and I think she'd feel so much better if she was working toward a solution.

[vespito]

Thank you all for the feedback.  I think it is important to understand what their goals are, and just provide facts without recommending a course of action.  We'll see how it goes.  They probably know half of what I'm going to say anyway.

[Thegoblinchief]

You could also point them here. Tell them to make a Case Study post, that way any face punches are from anonymous internet peeps.

[John74]

When my mother-in-law got divorced and her income plunged from $200K+ to just over $30K per year, I helped her come up with a budget. She and her husband used to spend freely and it was a big adjustment.  The big house? out. Dining out all the time? out. The expensive hair dresser? out. At first she reacted angrily at my suggestions, as if I was the one forcing budget cuts on her. I kinda became the bad guy so I backed off. Of course, reality set in after a few months and she eventually followed my advice.