Relationships

Ask Paco: “Should I Lend My Friend Money?”

Ask Paco: Because Finance Can Be Fun

Once a month, finance expert Paco de Leon tackles our pressing questions about all things money, with her signature dose of wit. Here are today’s topics, including how much to spend on rent and what to say when a friend asks for money…

Q: What percentage of your salary should be spent on rent? How much is it okay to deviate from the ‘norm’ depending on where you live (especially an expensive city like New York or San Francisco)? I’ve heard that 30% is the amount to shoot for, but as someone who will make $40k for the next few years, this isn’t feasible for me. — Amanda

A: General financial wisdom says that you should spend no more than 32% of your gross income on housing. Still, I know plenty of people whose rent is 50% of their income, sometimes more. The 32% recommendation is definitely prudent, but the reality of the cost of living in major cities is a tough pill to swallow. You are not alone — it is currently impossible for lots of people to meet this standard.

In order to lower costs in an expensive city, I would try to find roommates, and do your best to live frugally. Cook most of your meals, stay with family and friends when you travel, and learn how to enjoy the free things in life (like my personal favorite, eating all the free snacks at work).

If you’re looking for permission to deviate from the ‘norm’ and spend a large portion of your income on housing costs, there are plenty of people doing it, but know that you’re taking a risk. This is especially true if you can’t afford to save or if you’re going into debt. Things can get precarious quickly.

Your goals, lifestyle and circumstances should drive your financial decisions. There are different types of people living life in all different ways. There are those folks who save 50% (or more!?) of their income and want to retire in their 40s who don’t care where they live as long as it’s cheap. There are people who are huge homebodies for whom it’s worth it to spend a large portion on rent because they cut back in other ways. You have to weigh your values and your goals, and then make decisions that are in line with them.

Q: My friend recently asked to borrow money from me. This person makes decent money and is a bit of a reckless spender. That being said, he’s a good friend and a good person and I want to help. What are your thoughts on lending money to friends and family members? — Theresa

A: If you lend money to someone, it should be money that you don’t need back. So, if they don’t end up paying you back, then it’s all good (kinda). No harm, no foul, and chances are you’ll be able to look past that and continue being friends. But if it’s money you need and you don’t get it back, well, that might be harder to get over. Notarized paperwork and papering the deal in general is a great idea. It’s nice and clean. But, when it comes time to enforce those terms, you have no way of knowing whether or not things will get messy.

You also point out that this person is a reckless spender. If I had extra money, and I knew the person who asked for a loan made oddly prioritized choices about money, I would limit the amount I’d lend them because I wouldn’t expect it back. But if someone needed my emergency fund and they prioritized weird spending, then I would tell them no.

In general, if you want to get out of lending money in a tactful way, saying you can’t afford it is always one option. But if you’re wearing lots of pearls and diamonds and drinking water with gold leaf in it, and you say you can’t afford it, they probably won’t believe you. In that case, you could say it’s because you have joint finances and your partner isn’t cool with it. Or you can simply say you have a hard rule where you don’t lend money to people.

And, now, a mini pep talk: We’re choosing to continue to participate in the modern economy, and it’s super weird and human made and confusing. All we have to do is take a bit of time and attention to acquire financial knowledge little by little. Maybe it’s because I’m a millennial, but I believe in you! Just learn what’s relevant to you right now. That alone is huge.


Paco de Leon is a musician who happens to be killer at finance. Her experience includes business consulting, business management, financial planning, wealth management and even some time at a giant bank. Her experiences led her to found The Hell Yeah Group, a financial firm focused on inspiring creatives to be engaged with their finances and giving them the tools and support to stop freaking out about it.

Thank you so much, Paco! Do you have a money question? Please let us know in the comments below…

P.S. Paying for your parents, and do you talk about money with friends?

(Photo courtesy of Paco; illustrated background by Alessandra Olanow.)

  1. Jennifer C. says...

    My husband and I (who share finances) have made the huge mistake of loaning money to friends and family even when we couldn’t afford it. It’s not only hurt us financially but has never turned out well with the friends. We decided long ago to just say no. There have been a very few circumstances over our 28 years together where we’ve decided a) it was worth it and b) we could afford it, and we’ve consented but have agreed that it would be a gift. For example, my sister asked to borrow $1,000 earnest money when buying her first home and offered to pay it back as soon as she got her income tax refund. We discussed it and gave it to her as an early housewarming gift. We had no idea what she ended up using her tax refund for but, the beauty of this is…it never crossed our minds! Win! Win!

  2. Lindsay says...

    I LOVE this series!! Paco, thank you so much for sharing your expertise and ideas.

  3. Kate says...

    Thanks, J! :)

  4. Amanda says...

    Several years ago, my husband came to me to discuss lending money to a friend. I told him that I had only one question: Is the need of the friend worth losing the friendship? We could afford the amount to be a gift, but both knew that if it was not paid back, the friend would feel weird around him and it would probably end the friendship. Husband reflected and decided that the need was worth the risk. Unfortunately, it did lead to the demise of the friendship, but my husband has not ever regretted the loss of the money – only the loss of the friend.

  5. Aimee Daddi says...

    Water with a gold leaf??? Love your style and advice!

  6. caitlin says...

    Thanks for that mini pep talk, Paco. As I try to figure out where to move my checking account and feeling slightly overwhelmed by APY’s, minimum account balances, and the discussion around credit union vs banks, realizing I just gotta take it one step at a time helped calm my brain.

  7. Kate says...

    My question for Paco — I’m currently somewhere between an emergency fund and a down payment, and given the housing market where I live, I expect to be there for a long time! Interest rates being what they are (I’m shopping around for accounts and CDs, but it doesn’t do much), is there anything else I can do to build my savings?

    PS: Love this column!

    • J says...

      I have a lot of money in the Vanguard prime money market fund. It’s no risk with a pretty good return-much better than CDs and bank sponsored products). This account usually shows up in articles about good places to put cash. We have our down payment money in the fund.

  8. Esme says...

    Hi Paco. I’ve really appreciated your content here! What are your thoughts on marital agreements (or postnups) when it comes to buying property?

    My husband and I are in our 30s and looking into buying our first property together. In the past we have split rent 50/50, but my parents have offered a sizeable gift to help with our downpayment, which will introduce an imbalance in terms of our own and our respective families’ contributions.
    I feel confident in my own finances, but my husband’s personal finance style is different (he has a very good pension, but is not a great saver otherwise).

  9. Jessica says...

    Hi Paco! I see that a lot of the commenters are asking about student loan debt. My husband has a significant amount of law school debt that he’s had to forebear for various reasons throughout the years. He is not eligible for income-based repayment anymore. It takes a big chunk of his paycheck but luckily we have decent incomes. Here’s my question: should he be aggressive at paying them back or should he pay the minimum? We are in our late 30s and he has been paying his loans for about 7 years and we both invest in retirement accounts and other investment accounts, but I would like to be more aggressive in saving for our future. Thanks!

  10. Emily says...

    I have a question! In regards to percentage rules – like, 30% should go towards rent, etc. – does that mean 30% before taxes or 30% of what your take home pay (after taxes, health insurance, 401k contributions) actually is? I have always wondered that!

    • Nan says...

      That is such a good point! I second this!

    • Joanna Goddard says...

      i’m pretty sure it’s 30% of your gross income before taxes — we’ll also ask paco!

    • Elizabeth says...

      Hi Emily! I’m a tax CPA, when someone is referring to your income as gross that means before anything gets taken out (tax, 401k, insurance, etc.) and when they say your net income that is the amount after all the deductions(tax, 401k, insurance) or as many refer to it, your take home pay. So the 30% should be applied to your before tax pay or gross income ;)

  11. Hannah says...

    We have some stock through my husband’s work. Is it better to hang on to it, longterm, or should we sell it sooner?

    • Col says...

      The conventional advice is that it’s best not to hang onto it for too long. Pick a number that will make you happy as far as a profit. Sell it when you hit that number and don’t look back. Don’t rely on it for retirement– you’re much better off investing any profits in a diverse retirement portfolio if that’s your goal.

      If the stock is already in a retirement fund, best to rebalance that portfolio to be more diverse. If your husband’s company goes south, you don’t want to lose all that value in your retirement account in addition to the lost job income.

    • Molly says...

      Is this stock in your husband’s company? If so, I’d recommend selling it. You are already heavily invested in his company by virtue of the fact that his entire salary depends on the company’s well-being. If, God forbid, the company tanked tomorrow, not only would you be out your husband’s salary, you’d also never realise the value of the stock you hold.

      Sell the stock and use the proceeds to diversify your investment portfolio.

  12. Genevieve says...

    If I could go back to my younger self in my 20s when I was fresh out of college and actually be wise about anything related to housing, I would have used the 30-32% rule as Paco advises. This should be the guideline for anyone at any age, no matter if it’s your mortgage payment or monthly rent. I was definitely one of those people earning $40K in NYC and spending at least 50% on my rent.

    It’s true the early years of our career don’t leave much room for savings, but if possible these are the times to make the sacrifices. Prior to living in the city, I did live with my parents to save on rent and therefore had a commute of 1 – 1.5 hrs EACH WAY from the suburbs. Do everything you can to save on rent: put up with a longer commute to get cheaper rent, don’t shop unnecessarily, and if you can find a job in a city or area that has significantly lower costs of living compared to NY or SF…DO IT! You have your whole life to move later to these cities if you desire to do so, after saving on rent and moving up in your career.

  13. Esther says...

    Question for Paco,
    Are there other ways to build credit other than having a credit card?I haven’t bitten the bullet with getting a credit card yet because of the possibility of debt. Thanks so much, love this series!

    • Emily says...

      Esther, I think a lot of people these days really fear credit cards. I understand but getting one was the best thing I did for myself and my credit. At 21 I signed up for a GAP card of all things. To this day it is my oldest line of credit at 11 years. As long as you are careful to spend only what you can pay off in full at the end of every month, this will build your credit surely and steadily. I’ve always had a strict budget that I followed fastidiously. This helped me make sure I was never overspending.

      I wouldn’t recommend a store credit card as anyone’s intro card anymore. It’s just what I did all those years ago. I have my GAP card still, but my primary credit card is now my Capital One Venture One card. The Venture One has no fee but makes your spending work for you. You earn points on things you’d already buy in the course of the month. I’ve taken several trips using my miles now. We put our monthly expenses and bills on our credit card and pay them off >immediately< with the money in our bank account. This way we earn points but never run up any debt – all while building and maintaining our good credit.

      When picking a credit card, think about what your priorities are. Are you traveler? Then a travel card may be best. Would you prefer cash back? There's a card for that too. If you aren't putting your expenses on a card, you're leaving money on the table.

      I am not paid or sponsored by Capital One, but I will say I recommend them highly. They have always had my back from the times my number has been stolen (immediately refunding purchases and over nighting a new card) or even through a dispute with a shady vendor. Their customer service is really outstanding.

      Just my two cents.

  14. Sarah says...

    Does anyone have any tips about moving in with an SO? How do folks actually split costs (other than rent)? Like, one person buys groceries, one pays the vet bill and you assume it evens out? Or open a brand new credit card for shared expenses only and then you split the bill? Would love any practical tips. :)

    • Melissa says...

      For awhile my SO and I split everything 50/50, but then we realised that because we earn different incomes, 50% of an expense impacted us differently. Instead we’ve decided to contribute the same percentage of our total income to a pot of money that we use for our shared expenses. We figured out our total budget and worked backwards to determine the right percentage. By each contributing 40% of our incomes from all sources, we are able cover all of our shared expenses and also contribute to joint savings. I should mention that we also made an adjustment when calculating our income because one of us has retirement savings from an employer which never make it on to a paycheque and the other of us has to save for retirement with after tax dollars.

    • Amanda says...

      I’ve been living with my husband (moved in when he was my boyfriend) for 5 years and we only just got a joint bank account 2 months ago—so I’ve been exactly where you are. My take home salary was always more than his, and we didn’t even split the rent 50/50 for a while there. Have a super frank discussion with them about what you want to do and what you can afford, that’s the most important–they should also have a say. Then honestly, you just make it work. For instance- groceries we would swap buying every other week and that felt kind of even for a long time. Most dinners out and other date night splurges we split. If your partner knows what you have and you know what they have, it makes it a lot easier to figure these things out. It doesn’t have to be even–no partnerships really are. I don’t know anyone that makes the same salary as their SO, so make it work, be gracious, and communicate!

    • Lisa says...

      I’ve been living with my boyfriend for a year now, and we currently split rent 50/50, but beyond that it gets gray. We used to split everything 50/50 and venmo charge each other, but now we have found a system that works for us.

      I pay for groceries (because he never eats breakfast or lunch from this haul but I do, and its only about 3 dinners per week), and I pay for cable and electricity (our only household bills). However, he pays for the majority of dinners and drinks out (this helps me not bug him about not ordering the appetizer or the after dinner drink because of $$) and he’s also saving for a BIG purchase, if you know what I mean.

      At the end of the day it comes out fairly even-ish, but I really only feel comfortable approaching it as this “not everything is 50/50” way because I know marriage and joint finances are in our future. If I was unsure about our future, I would be more strict about the 50/50 rule I think, no matter how annoying it got.

      **My tip – be as fair as possible, have the tough convos in the beginning, and reevaluate every few months or so to see what works from both a financial standpoint and also an emotional standpoint (if charging your partner for the $20 CVS run is irking you both, for example, it’s not worth it).

    • Kirsten says...

      I’m married now and we’ve chosen to put everything in a joint account, which works for us. But prior to that we did a joint account where we each deposited a set amount each month. We actually were making exactly the same salary at the time, but I think deciding the amount based on your personal budget and comfort is the best way.

    • ellie says...

      My boyfriend and I use Splitwise to track our expenses and it’s a lifesaver. I believe in the 50/50 split, but his income has fluctuated a bit more than mine and he has some debt that he’s working off. I’m fine shouldering more of the burden now, as long as it’s recorded in Splitwise so he can pay me back when his income rises.

    • Lesley says...

      My boyfriend I have been splitting evenly for the 4 years we’ve lived together. At the end of the month all expenses (Seamless, Netlifx, FIOS, groceries, rent, utilities, wine, restaurants, taxis, household purchases from Amazon, Venmo to other people for group dinners…) goes into a spreadsheet. Then whoever has the lower number, sends the other person 1/2 the difference so we have balanced our expenses. We use Chase Zelle, but Venmo would work. This does take 20/30 minutes every month, but the peace of mind and sense of equality is very worth it for us!

  15. Martha says...

    Money question: is it better to pay off debt (credit card, student loans) or to invest some money too? I’ve read that investing money NOW is the best way to prepare for your future instead of using a lot of your income to pay off debt.

    I have some credit card debt that I got myself into and I’m just wondering the best way to go about paying it off.

    • Elizabeth says...

      I would also love Paco’s thoughts on paying off student loans vs investing money elsewhere.

      Martha, I am no financial expert, but the interest rate on a credit card is almost always going to be higher than the average return on investment. This means paying off credit card debt is often the best thing to put your spare cash into. Two other thoughts, though: if you’ve gotten yourself into a place where you keep putting purchases on a credit card, you may need to look at changing your lifestyle or spending habits. If you pay off a card but immediately charge it back up, you haven’t fixed the problem. Second thought: look into balance transfer options with the accounts you already have. Sometimes this can really help to lower the interest charges you incur while paying down debt.

    • Nicole says...

      YES to this question, as someone who is in grad school and looking at student loans forever.

    • Kelly says...

      1. set aside savings to cover for emergencies. depends on your monthly expenses and security of your job but usually experts say at least 2 months of living expenses.
      2. Pay off your credit cards. You’re prob paying much higher rate of interest on your credit card than you could hope to gain from investment, so this is the most efficient use of your funds. It’s also soooo motivating to see credit card debt shrink.
      3. save as much as you can in any tax advantaged accounts you are eligible for. 401k or other retirement vehicle. if your company offers a 401k match, maximize it. if you qualify, Roth accounts have great tax advantages.

      that’s it.

    • Melissa says...

      That credit card debt should be paid off ASAP, in my opinion. The interest is way too high, you’ll never be able to invest wisely enough to warrant investing now vs paying down debt.

    • Laura says...

      The general rule of thumb is to pay off debt if the interest rate is higher than what you can expect to earn from investing.

      Since you’re probably going to be looking at 5-8% return from investment (this is a fairly cautious, yet reasonable estimate) if you have credit card debt that has an interest rate of 20% you should definitely pay that down first. But if you have, say, a mortgage that has a rate of 4% it’s better to make payments and invest the rest.

      Bottom line: look at the rates on your debt, if it’s higher than 8% pay it off, if it’s lower than 8% pay the minimums and invest.

  16. june2 says...

    I’ve seen others maintain their standard of living in expensive cities by securing the lease on a dwelling with 3 or more bedrooms and renting out the other rooms. Especially if you can invest in furnishing and decorating the main areas, you can charge a good price for the other rooms and all live well beyond your current means.

    Lots of people want housemates to alleviate loneliness, not because they are trying to save money. I haven’t done this since my 20’s but I remember the best thing we did was hire a cleaner to come once a week so that discord about housekeeping was a non issue! We just added the extra to our rent and even on my very tight budget, it was worth every penny.

    The other thing we did was carefully vet people in group interviews to determine compatibility – male or female, (we had mixed households of up to 7 people in those big old mansions in DC), that was most important.

    Now, in my 50’s I’m planning to buy a house and do this very same thing for a while, until I feel financially secure enough to handle it all and live alone.

    • Joanna Goddard says...

      that’s such a good point, june. i LOVED living with roommates in my twenties, before i met alex. it’s so nice to have someone to watch movies with on sundays, when you’re just lounging around; and someone to catch up with at the end of the day. sometimes i think it would even be nice to share a home with another family, like this: https://cupofjo.com/2015/10/communal-house-cohousing-san-francisco/

    • Sarah says...

      +1 to the housekeeper! That always seemed like a frivolous/”too expensive” thing, but my husband lived with three other guys for 4 years after college, and they paid $25/month (each) for someone to come once a month to clean. Added bonus: all us girlfriends actually *wanted* to come hang out at their well-kept house.

  17. I am so NOT a millennial, but I believe in you too! And by ‘you’ I mean ALL OF YOU.

  18. Ro says...

    So happy to hear it’s okay to spend more money on rent, even if it goes against the 30% rule — if that feels important to you. Living with roommates isn’t the best choice for everyone. While some people find it beneficial (and even fun), or view it as a way to live somewhere they might not be able to otherwise afford, others view it as stressful, tiring, scary, upsetting, etc. If you think you’d benefit from having your own space, and full control over that space, then it may be worth it to spend a little (or a lot) more. Just my two cents :)

  19. Liz says...

    love this! Thanks, Paco!

  20. Hannah says...

    I have a money question for Paco! My fiancé makes significantly more money than me and we have an informal agreement as to how we split up finances that works for us. The sticking point is my credit card debt. I am working on paying off a credit card but it’s slow going. My fiancé has enough money that he could pay it off in one lump sum and he has offered to do so. I’m reluctant to take him up on the offer because this is my mess and I feel like I need to take care of it myself. Additionally, my fiancé has student loans and aggressive saving goals that I feel his money would be better spent on. Pride aside, what is the most financially responsible option here?

    • Jen says...

      Clear the credit card debt! I was in a similar circumstance where I had CC debt and my partner had MORE debt, but in student loans. If you really calculate the amount in interest you will be paying it’s better to wipe out the CC. If you are getting married, each person’s debts are now both of your debts and you have to prioritize. Just like there’s a benefit for your partner to clear off your high interest CC debt, once that’s done, it benefits you to redirect the money you were throwing at the CC to help pay off his student loans. If you want to be debt free together, you pay off the debt together!

    • jan says...

      What Jen said, to eliminate interest! Plus, you can always pay him back personally, interest free!

    • Emily L says...

      It’s also worth considering the “snowball effect” when paying off debt – it’s so much more encouraging to pay off a smaller amount (say $2000 on a credit card) and THEN chip away at a $50,000 student loan rather than make very small progress at both. Once you pay off the smaller one you’re like “YES!! I CAN DO THIS!!”

      If you’re more comfortable waiting until you are married I could understand that, but once you ARE married all debts become both of your debts because they affect your entire life together.

    • Kelly says...

      clear the credit card debt but insist on paying him back! i went through a long hard slog to pay off credit cards in my 20s…looking back it was the best money lessons I ever got and the painful process was such motivation to never get myself in that situation again!

  21. becs says...

    About looking for cheaper rent in big cities, my advice is to share space!
    We own a house in the suburbs of a big city, and converted our basement to a mostly-private apartment (we just share an entrance). We advertise the space at a lower rent on grad school and seminary off-campus housing boards, assuming that we will be attracting responsible young adults who are willing to make a few sacrifices (i.e. young family with loud kids living above them) for lower rent in a safe neighborhood. It helps us with our mortgage, and our housemates are able to stay below the 30% of income rule. Win-win!

  22. Jessica says...

    My biggest question right now is: if you have extra cash, do you add more to your savings or do you make an extra payment on your student loan? I realize that it’s an oxymoron to build wealth while $75k in debt, but I constantly waffle back and forth between using my extra cash to increase my savings/investments or make an extra payment on my loans.

    For some context, I have about 3-4 months in straight savings and a healthy 401k. I’m not hard up for cash, but sometimes I just want permission to stop feeling that pressure to get rid of my student loans ASAP and instead save for something like a home. It feels like we laud edge cases who manage to save 50% of their income and can reduce sizeable debt in a few years, but I’m just not sure I *want* to live that poorly… I like nice things and want to enjoy the money I work for. Am I making a bad financial decision by sticking to my long-term repayment plan so that I can enjoy my short-term?!

    • Kate says...

      I would say it depends on the percentages you are paying/making on both. If you have a low interest rate on your student loans and are making a better percentage on your investments, then there isn’t really an incentive to try to pay off your student loans more quickly.
      If you have your student loans are borrowed at a higher percentage than you are making on your investments, then it’s probably worthwhile to pay them down more quickly.

    • Jessica says...

      Kate – that’s a good point! Right now, my 401k and investments are returning at a rate higher than my student loans (5.2%). My high-yield savings account isn’t (that would be incredible!), but you’ve given me something to at least think about. Thanks!

  23. Love this series! Her advice is so down to earth and helpful!

  24. MA says...

    Love Paco’s advice.
    I have a burning question that I’ve been pondering for a few years: should I prioritize saving for my kids college fund or my own retirement? Thanks!

    • sheena says...

      This is an important question for me too. How to do both?

    • Amy says...

      I remember this line from somewhere: you can take out loans to pay for college, you cannot take out loans to pay for retirement.

      It’s nice to help your kids with college but not a necessity the way that saving for retirement is (assuming you want the option to retire one day).

    • Christy says...

      While I’m not an expert, I’m prioritizing my retirement. My parents weren’t able to help me with my schooling costs and also have ZERO retirement saved…which means in a few years we’re going have to have some difficult conversations about how best to help them. I did have to take out student loans for school, but have paid them back in full and almost have enough for a down payment, at age 30. For me, I think the lesson in living frugally while in collage A. made me pay more attention to my studies since I was very aware of the cost, and B. made it easy to keep a low standard of living until after my loans were paid back.

      When it’s time for me to retire, I don’t want to be a burden on my kids.

    • SLG says...

      Your retirement, hands down. This is similar to the “put on your own oxygen mask first” rule. If you don’t have funds for retirement and something goes wrong (injury, illness, you become unable to work, etc.), you may end up needing help from your kids — right when they’re trying to get through college and get started in life.

      On the other hand, if you’ve planned well for retirement, even if you can’t pay for college, you’ll be able to support them in other ways because your own life is stable.

    • Alisha Pogue says...

      Per Dave Ramsey (who I know is a super-aggressive saver so take what you will from this), its always best to pay down all personal debt and acquire the lowest interest student loans for your child. If all works according to plan, you can pay off the loans as a gift in the future or share the burden with your child. The time you miss in interest with savings (or that which you accrue through keeping debt) is staggering in the long run and you can’t really expect your 20-something kiddo to help with your retirement costs when they are just starting out.

    • JA says...

      I once learned that saving for retirement vs. saving for your children’s education should be treated like a pre-flight safety demonstration – “place the oxygen mask on yourself first before helping small children or others who may need your assistance.” And like Amy said above, you can take a loan for school but can’t take a loan for retirement!

  25. Jess. says...

    Paco, it feels crazy to me that we’re talking about money and you make me feel happy. Like, loved and safe. Thank you so much for that! I’m grateful for your features here.

    I’d like to add my voice to your first answer. When I first moved to NYC, I prioritized living alone and spent too large a percentage of my income on rent. I got by, but I wish now, as a mom, that I had gone the roommate route then and had more savings/no debt now. I think, too, that there’s A LOT to be said with spending more time with more people (and less time rattling around in an apartment by yourself) when it comes to emotional happiness and healthy decision making. xox

  26. With regards to the first question about rent, the advice I always give to younger people starting out in NYC or anywhere is: roommates, roommates, roommates. This coming from a total introvert who really values her privacy! It was scary the first time I had to move in with a total stranger — and that one did NOT work out — but eventually I ended up living with people who didn’t drive me insane, some of whom even became friends, and I never spent more than $1100/month on rent, in NYC, which enabled me to save way more than other people I knew over the years. In general I found you should go with your gut — if the person you’re moving in with seems nice but something’s telling you no, don’t do it. Make sure your actual room is private — I couldn’t share an actual room with someone! — and consider living in “up-and-coming” neighborhoods, as long as they’re relatively safe. Also, the more roommates, the less the rent, in general, and I actually found it easier to live with 2-4 people as opposed to just 1, then if there’s tension there’s more people to diffuse it. Oh, and pitch in on the occasional cleaning person!

  27. Cara says...

    I LOVE these posts! My favorite CoJ posts! I

  28. Kate says...

    I spent more than 32% of my income on rent when I was in grad school. I think Paco is right–it really depends on the rest of your situation. In my case, I didn’t have a lot of other debt, and did not have any car payments. My health insurance was comparatively inexpensive because it was subsidized by the university. On the other hand, I did do some of the standard “grad student saving money” stuff–taking advantage of random free food events on campus, signing up for various studies that paid for participation…

  29. Aaa!! This is still a confusing topic :D

  30. Amy says...

    For anyone who is interested in learning more about being financially literate, there’s a podcast called The Pineapple Project that focuses on just this- getting to grips with budgeting and money and how to make better decisions. It’s funny and very accessible to people who normally shy away from money and numbers. (If you can stand the Australian accent! Our $50 notes are yellow =pineapples)

  31. Nora B says...

    I love Paco’s approach and the phrase “drinking water with gold leaf in it” made me laugh so hard.

  32. Caitlin Scott says...

    I just love these posts. They’re important. They’re smart. They’re making financial literacy seem very cool. These posts have helped me knuckle up lately when it comes to facing credit card bills, etc. Money has made me uncomfortable my whole life, and this frank (yet also approachable and somehow cute?) discussion about it is super sexy. Thanks, Paco!!

  33. Becky O. says...

    Money is ‘funny’ in that it can really destroy relationships. Based on past experience (and watching Judge Judy), I never lend people money anymore. If a close family member or close friend needs money, I will give what I can to them. If the person insists that it should be a loan, instead, I work out some sort of trade, e.g., babysit my kids for an evening, cook a meal, etc.

    • Amy says...

      “and watching Judge Judy” ….dying here! lololol!

    • Kelly says...

      yep. i agree that if you want to loan money, it has to be money you would be comfortable never seeing again.

      buuuut, even if you really don’t ‘need’ the money in a meaningful way, when your friend who ‘borrowed’ it and hasn’t paid it back calls to tell you that they’re jetting off on an impromptu trip to Timbuktu or other crazy luxury that you responsible diligent saver would never treat yourself to, how are you gonna feel?

  34. Kate says...

    My grandma always said “Never lend money to friends. If you want to help them out, consider it as a gift so if/when you never see it, you’ll still love them.”
    I’m not one to necessarily give money to people but I ask what I can do to help like feeding them, paying them to watch my dog, or refer them for better jobs, etc.

  35. If anyone does opt to go out on a limb and loan a friend or family member money- may I suggest Loanwell? I have no affiliation with this company, but they offer a low-cost way to get the legal stuff accounted for and get some structure to the loan. I agree with Paco- notarizing and legalizing is smart. An extra step, like linking in Loanwell, might be helpful for both parties.

  36. Kari says...

    Love Paco’s monthly finance post! Practical, enjoyable, and useful.

  37. Kate says...

    Thank you for the financial blog posts! A futute topic that i think would be great is teaching your kids a budget. My dad has always been fantastic, but the greatest thing he did for me was help me set a budget once I got my first post-college job. And by help, I mean he did the whole thing. Told me exactly what I could afford to spend eating out, for rent, etc. I’ve made ny own budget several times now, but his lesson is what empowered me to do that.

    • Karen says...

      I remember when I went to college, one of the first things my Dad did was shop around the area for the best interest rates. I had a bank account starting at 6 years old! We transferred it to a bank near my college. Having fiscally responsible parents is a blessing (and I am not one to use that word often).

  38. amy says...

    More from her please! I like her posts!

    • Carrie says...

      Me too. I wish we had a finance class in high school (and a teacher just like her!) I’m not sure why students are never taught this material.

  39. B says...

    Just to add to the chorus — I love this content and Paco’s advice. I would also love a post — by Paco or otherwise — providing tips on how to cut corners that may not be obvious. And I would love to hear tips from the brilliant CoJ hive mind, too. My husband is better at corner cutting than me — he taught me to buy all household goods in bulk online ahead of time, check SlickDeals for deals on all kinds of things, and leave things in the Amazon cart for a few days before deciding. I never realized that, unless you have coupons, buying anything besides RX at a drug store is rarely a great deal. I also love the fun challenge of aiming to have a day each week when you spend no money. I am also hoping to do less driving and use public transportation more, and to meet up with friends for a walk or a cup of tea at home rather than having drinks out.

    • C says...

      One thing that has helped us is instead of just freely purchasing things, we have a running list of items we want that cost over $100. At the end of each pay period, we look at how much of our disposable income we have left and said list. Then we choose what we want from the list and buy it with the remaining money. Waiting feels rewarding and it also forces us to prioritize which “wants” are most important.

    • Anna says...

      I’d recommend taking a look at The Barefoot Investor. So many good tips about cutting down the cost of bills etc. The author is Australian so some of the advice is Aussie-specific but a lot of it is general too (perhaps you can find it in the library first before committing to buying it, and I think a lot of his tips are online too).

  40. Jesse says...

    Do not lend money to family or friends. If, and only if, you can afford it, simply give it to them with no expectations of being paid back. If you cannot afford to give money away, don’t.

  41. Cara says...

    I have a question for Paco that’s pretty specific to my situation but could possibly help others out there too! I’ve been graduated for a few years and managed to get through school without any student loans. I prided myself on this fact and hated the idea of taking on any student loan debt because being debt-free (except for my car) has made such a difference in my life after college. BUT things have changed. About a year ago, I got married, and due to a variety of factors in his life, my husband is still finishing his degree. I make enough money to support us both but definitely not enough to support us both and pay for tuition. Even when he has a part-time job, we still don’t have enough to cover tuition completely. Tuition aside, we barely have enough to cover all our expenses (mostly rent) and save a small amount. I’ve been taking the mental approach that we should scrimp and save and throw all our money at school, but I have to admit that this is hard for me to do when I watch other people our age do things like buy houses and go on fancy trips. I feel like I already lived the cheap student life, so I don’t want to do it again. I also feel like I don’t want to pay for his school when I already paid for mine. He’s said that we should just take out student loans so he can pay for it later once he’s graduated and has a full-time job. What is the right answer here? I’ll take any advice you have.

    • Katie says...

      Hi Cara,
      This is just my opinion, but I do not believe you should be responsible for both supporting your husband and paying his tuition. It is commendable that you were able to go through school without student loans, but it doesn’t sound like he is able to do that for himself —which is okay. It might make more sense for him to take out a loan that is his responsibility to pay back later.
      You sound happily married, but it’s important to consider yourself in this situation. If your husband takes out a student loan, that will be his responsibility to repay in the future (ie if you divorced it would not be a debt you would share). Alternatively, you could spend years supporting him and paying his tuition, while forgoing travel and a home purchases and other personal goals. This could easily lead to resentment, and if you were to be ever split up, his education would not be an “asset” that you could spit (even after paying for it for years).
      Just my two cents! It sounds like your husband also might prefer to fund his education himself to through loans, but I would definitely take about all your options together.

    • t says...

      How old are you? I only ask because when I was 25 I felt so panicked “buy a house NOW or you’ll get left behind!” I bought a house at 25 (with my then boyfriend), we’re still together in that house BUT at 35 I’ve realised how much more time I had than I thought. In our market our home is worth as much today as we bought it (no appreciation) and my friends who spent a decade so stressed that they were falling behind are stepping right into homes at the same position as I did. My point is only, your panic might not be a reflection of reality. You’re going to have to sit down and figure out YOUR priorities, not just spend all your money on school out of fear of loans. You have to choose that is the best place for your money or choose something else. But all in all, there is likely more time to do what you want than you think.

      Oh and also; I don’t want to encourage fiscal irresponsibility but it’s not just money that runs out, life does too, so it’s wise not to overcommit to things at the expense of experience. Choose wisely because it’s a privilege to have a choice at all. xx

      Goodluck.

    • Emma says...

      Not Paco, but two thoughts.
      1. Cash flow versus investment. School is an investment and one that it sounds like your husband understands. Personally I always try to make sure that I’m saving up enough money to cover small emergencies easily (like if the cat needs to go to the vet or I get a flat tire). Student loans are not great, but they are a more adjustable form of loan than many other kinds of credit and the interest rates are much better than credit cards. So if the alternative to student loan debt is an extremely tight cash flow that leaves little room for the unexpected realities of life, loans might be worthwhile.

      2. I never took on student loan debt either, but I did buy a house, and although that’s great in many ways, I often wonder about whether I should have taken on some student loans to attend a better school and maybe have a more interesting/intellectually challenging career. My point is: it’s always easy to compare yourself to others, and you’ve chosen your husband. While I don’t think you should feel responsible for paying his way through college, you collectively are at a point in life when he is in school and you are working (and possibly he’s working part-time too). How do you make that work as a couple?

      I can’t believe I’m saying this because I absolutely hate debt, but it sounds like he might be onto something with the student loan idea…

    • S says...

      I don’t have an answer to your questions, but I can tell you this: do not compare yourself to people your age buying houses and going on fancy trips. For all you know, they have a lot of debt too and are maybe willing to take on more than you are.

      My boyfriend and I both work in the public sector, as do a lot of our friends, and our salary scales are public so we know roughly how much everyone makes. As we see everyone around us buying outrageously priced houses and tiny condos, having prohibitively expensive weddings, flying here and there on a whim, and wearing designer clothes, I often wonder if we’re doing something wrong. Are we not where we’re supposed to be? But then I find out that these friends who appear to living a pretty fancy lifestyle are actually in a lot of debt…people are just willing to take on different amounts of debt. And this isn’t something we advertise – people don’t walk around with “debt free!” or “- $60,000” placards around their necks. So when you see someone else buying a house or going on a fancy trip, it’s kind of like looking at the instagrammed version of their bank account. You only see a glimpse and it looks great, but you don’t know the whole story behind it. Don’t be tricked or pressured into making similar financial decisions. You just have to do what feels right for you and your husband.

    • Kirsten says...

      Also interested in this as someone who currently has no student loan debt but is considering going back for an advanced degree but really really doesn’t want to go into debt. My instinct would be if your husband doesn’t have very many years left in school, it’s probably worth it to scrimp for a short while longer just because living debt free is amazing. Those student loans pile up quick and then follow you around forever.

  42. Carrie says...

    For me personally, it’s a hard no, but that’s because the only person who asks me for money is my sister and she has a serious shopping problem. She has money, she just spends it on the wrong stuff and never has any left for essentials. I feel very strongly about not having any part in supporting that.

    • Kim says...

      I think we have the same sister :)

  43. Rachel says...

    After lending multiple people money over the years, my hard rule is this: GIVE people money, don’t loan it.

    If it is going to break you to give someone $1000, then you shouldn’t be loaning it either. It turns out that giving people money also feels better, and from their perspective, it’s nice to hear, “No, I can’t loan you $500, but I can give you $100.” Then it’s a gift, and it’s over.

    • Renee says...

      This is so much better! If you lend money you either become scared to ask for it back or mad that it’s taking so long for said person to pay you back. Gifting money leaves everyone in the clear.

    • janice says...

      I agree because I do the same. I give what I can afford. I give so that the person in need would not be burdened to return the money.

  44. Amanda G says...

    COJ team, I want to thank you so much for tackling money in these monthly posts. I have never been the wisest spender, but recently I was getting SO frustrated with my finances. My husband and I kept running into a wall every pay period where our bank was alerting us about a week before payday that our account had less than $200 in it, and we weren’t saving a dime! Your approach to tackling money head on inspired me to take a harder look at our spending and saving.

    As someone who has FOREVER been deathly afraid of looking at my bank account, I finally decided enough was enough. I sat down with our bank statements and made a simple spreadsheet for every single recurring monthly expense and our carrying balance. I decided to make some aggressive payments to our highest balance credit card and only gave us a set amount to live off of during the month, from which we had to pull groceries, gas, and any other discretionary spending. Each evening, I take any receipts from the day and add them to the spreadsheet, deduct them from the balance, and categorize them according to food, gas, toiletries, etc. Once I have a few months under my belt, I’ll use these categorizations to build a more informed budget!

    It hasn’t taken us long to realize that we have been hemorrhaging money with tiny purchases here and there that added up to A LOT, as well as eating out more than we thought we had (and man, those bills add up, especially when you tip 15-20%!).

    Taking a good, hard look at our cash flows have helped us recognize monthly recurring expenses we don’t need (like my husband’s monthly car wash membership) and better helped us time the flow of cash through the account, so we don’t get low enough to warrant those low balance alerts. Plus, we will have our credit card paid off in a few months and can start putting more money towards our honeymoon fund!

    The biggest change is that I actually feel *empowered* every time I log into our bank account, because I know what to expect. It feels good to be in charge!

    • Alli says...

      I’m inspired by reading this, Amanda! Way to go! (now I just gotta follow this advice myself).

    • Rosa says...

      Kudos! Loooove this. Money doesnt have to be scary. This happened for me and my husband last year . We are still paying down a line of credit but I feel empowered making choices !

    • Caitlin Scott says...

      Yay Amanda, this is awesome!! You’ve inspired me!

    • Kelly says...

      I did this as a newlywed in my 20s…paid off all our debts and then saved aggressively. It is incredibly empowering.

      Also i read somewhere that there’s all kinds of advice on how to save but one of the fastest ways to financial security is to make more money. My husband and I saved diligently but also worked very hard to advance our careers. After a long stretch of being broke in my 20s I decided I never wanted to be broke again. This meant I left behind the fields i thought were my passions (English lit, cooking) to pursue a Finance MBA and enter the corporate world. Not for everyone, I know, but these are the trade offs that we have to look at. Now I’m in my mid 40s and have a high degree of financial security, and am starting to think about a second career that might be more in line with my passions, or even taking time off to be a stay at home mom.

      no decisions yet, but I’m so grateful to me in my 20s for getting me on this path.

  45. Gwen says...

    I have a little bit of a different take on the question of lending money to a friend. In general, I would say: I have friends I would lend next month’s rent money to. If they say they’ve got it, they’ve got it, and I’m willing to bet on them. It’s pretty rare, though.

    For other friends, it depends on the reasons, and how much I think I’ll get back. I’m lucky enough to be in pretty good financial straits these days, and when i can, I like to help people out. But, like Paco said, it’s best if it’s money you don’t need back (and it doesn’t have to be like, need back for groceries. It could be need back towards the car emergency fund you’ve been saving when yours is on the out, towards a vacation, towards your peace of mind). If you’re going to resent them, then it’s less likely to be a good idea to lend the money. I do think sometimes it’s worth it even then, but *shrug* it’s your own call.

    I also diverge on the messaging to them. No is a complete sentence, and I think it’s really reasonable to say “I’m sorry, I can’t” (+/- “right now” if there are other times you would be okay lending to them). Because of my background, it took me a REALLY long time to be okay with saying “I can’t” to anything I could literally do. If it meant I would eat ramen for a month, and go into my grace period on my cell phone bill, I still felt like I literally could and so I had to give a reason for why not. Another great phrase is that “it’s not in my budget” (it’s what budgets are for). It’s true that people might press (which is rude), but I think it’s cool to hold the line on that. It’s just not their business. Also, if someone asks for an amount that’s too high (for them, for you, right now, whatever), but there’s a lower amount you’d agree to, you can always offer that. Or if you can’t lend money, you can always ask “Is there any other way I can help?”

    Now, if your partner isn’t cool with it, or you do have a hard rule, great. But if you’re thinking of using those to smooth things over (especially pre-emptively), maybe see if your friend will accept no first? And if you already know that this person is part of your life and will try and steamroller you, lie to the high heavens if you want. I’m not against lying (lol). But I’ve found that a lot of times I anticipated a really difficult conversation… just saying no, or you can’t can be really effective. And feeling like you can be authentic with your loved ones is super valuable.

    • Joanna Goddard says...

      this is great advice, gwen! thank you!

    • Katherine says...

      Love this. And it applies to so many other conversations and situations. When I am typing a difficult work email, I read back over it before sending it, and I try to remove any excuses or justifications and edit the email to be more concise and direct. I think women often approach difficult situations defensively and with an apology ready, when often you should just say what you think or how you feel and leave it at that – no excuses required.

    • LBINTHEBK says...

      Such clutch advice. Thank you.

  46. H says...

    In the past, I’ve found myself in some very difficult situations after lending money. I always felt I had to ‘rescue’ friends who were struggling. It took a lot of therapy to get to the bottom of it all, but I have learned that for me, it is better to protect my relationships. A ‘no’ is as much for their good as mine. Now that I’ve grown more secure maintaining my boundaries, I rarely get asked. When I do, I kindly but firmly decline and refer them to a good lender with reasonable fees.
    I have a (wealthy) family member who never ever lends money, but if he feels it’s a deserving situation will completely anonymously GIVE some or all of the requested money. His wealth allows him to be generous, but he doesn’t want to be pursued because of his wealth or wonder if people are being friendly so that they can benefit. I appreciate both his kindness AND wisdom.

  47. Irina says...

    I don’t really understand the advice of only lending people money if you don’t need it back. Unless you are very wealthy and are sitting on a pile of cash, then of course you need that money back. For most people who have savings, these funds have a specific purpose – vacation, new car, home repairs, college fund, etc., so they will still need that money down the road even if they don’t “need” it now. If everyone were to follow this advice, then only the wealthiest people with undesignated savings would ever lend their friends and family money.

    • Courtney Norton says...

      I think that she is trying to remind us of the difficulty of collecting on unsecured personal loans, i.e. where you are lending a friend or family member money in exchange for their (written or oral) promise to pay you back and do not have any collateral or security for the loan. Even if you “paper” the loan correctly by drafting a loan agreement or promissory note and getting it notarized, the cost and difficulty of collecting on the loan if your friend or family member refuses to or is unable to repay could be prohibitive. Thus, you need to make the loan (1) with the expectation/understanding that you may not be repaid and (2) with the knowledge that you will be ok financially (potentially forever) without that money. Paco said this in a much simpler way – don’t lend money that you “need”.

    • Ann says...

      I disagree. Many people that are neither rich nor sitting on piles of cash give away money – whether it be to charitable causes, community organizations, people who look like they could use a good meal, or loved ones and friends. What a sad place this world would be if regular non-wealthy people were so interested in their vacations and new car funds that they didn’t also contribute financially to people or things that could use a little bit of support.

    • Irina says...

      Thanks Courtney! I sort of understand… but still not quite. Why would your friend or family member not pay you back? Of course, emergencies happen, someone’s financial difficulties may turn out to be worse than they originally estimated and they may not be able to scrape together repayment funds when the time comes, but wouldn’t these situations be pretty rare? Don’t people generally borrow money with the full intent of paying it back? Why would your friend or relative risk damaging their relationship with you by defaulting on their loan, especially after you showed such thoughtfulness and trust by lending them money? Maybe I’m just too honest… or too trusting? If I borrow something, whether it’s money or an object, I always return it, as quickly as I am able, and I have the same expectations of other people in my life.

    • S says...

      Unfortunately, not everyone is as honest or reliable as you. When I was younger (and a much more broke student), one of my friends had a habit of forgetting her wallet or not having enough on her or only having a debit card at a place that was cash only, you get the idea. Overtime I probably “lent” her over 900$ and never got any of it back. It seemed little each separate time, but it really adds up when you’re a broke student. It eventually put an end to our friendship.

      More recently, a friend of mine lent $2,500 to a good friend of his who has a known gambling habit and was in a rough spot. The money was supposed to be repaid quite some time ago, but it wasn’t and now his friend is leaving town. My friend is now trying to get in touch with that friend’s father as a last attempt to get the money back before considering it completely lost.

      These kinds of stories are not at all out of the ordinary. Happens all the time.

    • Irina says...

      S – OK, I see what you’re saying. Thankfully I’ve never had an experience like the ones you’d described. I guess it can be a real test for a relationship, right? You get to see if someone has the decency to pay back what they owe, or if they are simply milking you for cash while being financially irresponsible.

      Ann – that’s not what I meant. I’m on a super-tight budget and I still set aside some cash for small charitable donations, or to buy small gifts for my friends and family members. I think I just had an issue with the way that the advice to only lend if you don’t need the money back seemed to imply that you can’t count on your friend or relative to pay you back. My gut reaction to this was, “Well, what kind of friend or family member would that be if you have to be so careful dealing with them?” I prefer to believe that the people close to me are trustworthy until proven otherwise. So, I’d rather lend with the expectation of being paid back, and then get burned, than have to engage in mental calculations like, “OK, this person is a friend, but can I count on her to pay back this loan?” If the person then defaults on their loan for no good reason, then that tells me how they really feel about me, and then I can choose to end that relationship. Best to surround yourself with people you can really count on, in my opinion, and stay away from those you can’t fully trust.

  48. Jenny says...

    I signed up for You Need a Budget from the first time you had Paco on and WOW! I *did* need a budget, and it’s fantastic. So, thanks Paco!

  49. L says...

    Thank you so much for this content. Paco’s real talk way of discussing money is so much more relatable than a lot of similar content on other sites.