5 Types of Toxic Money Friends that Can Derail Your FIRE Journey

This post is going to be a little different from the norm - because it’s about something that doesn’t necessarily always come up often when we talk about our finances.

I’m talking about toxic friends. Not just friends with bad habits, but friends who single-handedly help to derail your journey to financial independence, with sometimes irreversible effects. I want to show you how to identify these people in your life and offer some constructive ways to deal with them.

So let’s take a look at the different kinds of toxic friends you might have in your life.

The Business Partner

Now I’m not telling you not to go into a business partnership with friends - but in these kinds of relationships, it can be hard to separate the two . . . and you may often find these friendships can cloud your judgment.

The reason I’ve put these friends under this category is because it’s so easy for a business partner to become a toxic friend when you don’t treat your business as a business.

In any business relationship, it’s important to define the parameters of the business. Who has what responsibilities? How are the profits split? How will disagreements be handled? How much time will each of you dedicate to the business? You should have a contract or written agreement outlining these things, but it can be hard to put the hammer down when you’re dealing with friends.

Identifying how your business will run, how it will move forward, and even how it will end, is incredibly important. All of these things can affect whether your business relationship could turn into a toxic friendship.

The Rich Schemer

This is the friend who always has a get-rich-quick scheme up their sleeve, or a “once in a lifetime” opportunity they need you to invest in. They never have a business plan, but they always have a sales pitch. They talk about pyramid schemes, Ponzi schemes, and Multi-Level-Marketing while insisting it’s a great opportunity.

Thankfully, there are quick and easy ways to deal with this type of friend. You need to be direct and upfront when you tell them you aren’t interested. Leaving it too long will only put you in the position of having to make excuses over and over, as to why you can’t invest in their ideas. The key to these people is simply telling them you’re not getting involved.

The Crisis Friend

This is the friend whose life is always full of drama, and they always bring it right to your doorstep. These are people who often refuse to help themselves and make a pattern of making their financial problems, your financial problems.

While our natural instinct is always to help a friend in crisis, these people can be the most difficult friends to help. Helping people in difficult situations can mean that you have to invest a lot of time, money, and energy. It can be a surefire way to curb your journey to financial independence.

The Friendship Test

Now that I’ve identified the Crisis Friend, I have a small test for you to use. The first thing about this test is that Amon and I never give away money that we can’t afford to lose, or that we expect to get back. We give some money to the friend who needs it, then sit back and wait. If they return the money later, the test is a success.

This test still works if it fails, because if they don’t pay us back, we aren’t losing money we can’t afford to lose, but we also have a better idea of what stance to take with this person in the future. If they ask to borrow more money, it’s pretty easy to say “we helped you in the past but you never paid us back, so we can’t continue to risk lending you money.”

I know this may sound really harsh, but people like this often need this kind of wake-up call. When someone is borrowing money from their friends without repaying it, and then going back to ask for more without acknowledging the first amount, that’s a real problem. They need to be told there’s an issue.

You’re welcome to disagree and continue to give money to people like this, but try to remember that you are diverting your resources and making it harder to reach financial independence by doing so.

The ‘Steal-Your-Ideas’ Friend

This is personally my least favorite type of toxic friend. This is the person that you’ll share your plans and ideas with, and they turn around and do the exact same thing. It can be a big idea or a small one, but what they usually do is take advantage of the work and research you’ve put in so that they can profit off of it themselves.

But how do you avoid these people? The first and most important step is to identify them. If you’re sharing your plans with someone, and then a few weeks or months down the road they’ve gone and done the exact same thing, they’re the person I’m talking about. They are the person you should avoid oversharing to. By all means, share your ideas once you’ve executed them . . . but don’t give them the chance to steal your thunder.

The Friends With Bad Credit

Specifically, the ones who want to use your credit to buy things. You may not know how they got into the situation they’re in, but what you do know is that they want you to fix it. Do you really want to put your credit on the line for someone who can’t manage their own finances?

This can be a tricky conversation to have with a friend because they are being so open and honest with you about their situation. But at the same time, you have to think about how hard you’ve had to work to maintain the credit score you have.

The thing about co-signing onto something with a friend who has bad credit is that the co-sign is going to last for months or even years. If your friend can’t pay back the loan they take out, those delayed payments are going to have a significant impact on your credit. In turn, you may have problems getting a mortgage, starting a business, or simply renting a home.

Dealing with these friends is fairly similar to dealing with others on this list. You just have to be honest, upfront, and make it clear that you’re not interested. It’s important not to beat around the bush, and lead them into thinking you might change your mind. Be as straightforward as possible.

While there are all these types of friends that can derail your financial independence journey, there are also many friends that can really help and encourage you. These are the people who support you, lift you up, and allow you to strive toward your financial goals. Hopefully, what you take from this article is how to handle money-toxic friendships, and make more space for those positive friendships in your life.

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