Budgets have a bad rap. People think that budgeting means all your money has to go towards bills and saving, but that’s actually not true. Your budget should be for more than just your mortgage/rent, student loan debt, car payment, electric, water, heat, cell phone, groceries, insurance, etc. In order to be able to stick with your budget and not be tempted to break it, it’s important to make sure to budget for “fun money.”
What is fun money?
Fun money is money in your budget that is not designated for a specific purpose. It’s excess money after you’ve paid all your necessary expenses, made your debt payments and contributed to retirement and/or whatever other savings accounts you have. Fun money is meant to be spent on things you don’t need, but rather things you want. Budgeting for fun money eliminates the feeling of guilt you sometimes get when you spend money you “weren’t supposed to” a.k.a. you didn’t budget for.
Okay, but why do I need to budget for fun money if the whole point is to use it for whatever I want?
If you don’t budget for fun money, which most people do not, you end up spending it anyway. Not having a budget set for fun money often leads you to spending more than you should on indulgences. The problem is that many times these indulgences are small, so you may not think anything of them.
You may be thinking, who cares if I get my nails done? What’s wrong with purchasing a new set of dishtowels I thought were cute? Why can’t I treat myself to fresh flowers from time to time? Should I not buy my pet a new toy? Can I not buy a shirt from the clearance rack?
Of course there’s nothing wrong with these things. I love indulging myself, my dog and my husband. However, these things need a place in your budget because next thing you know, you’re inexplicably missing $60. It may sound crazy, but $20 for your nails, $10 for new dishtowels, $15 for flowers, $6 for a toy for your pet and $9 for a new shirt adds up to $60. These are just a few examples of nominal purchases that you may make in a month that are eating away at your money because you haven’t budgeted for them.
While $60 may not sound like a huge amount, think of it in comparison to some other expenses you have each month. That $60 might be your phone bill, electric, cable, or a week’s worth of groceries. Additionally, think of everything you COULD spend that $60 on. That $60 could have been a contribution to your savings account, an extra payment to the principal amount of your debt or a contribution to retirement. Inexplicably spending $60 per month equates to $720 a year. Now, just think of everything you could do with $720!
So how much should I budget for fun money?
Some people’s fun money budget might be as little as $20 while others budget $200 for fun money. The number varies based on several different factors, such as income levels, how much debt you have, what your savings goals are, what your monthly expenses are, etc. The more income you have, the higher your fun money budget will likely be. However, if you have a lot of debt, are aggressively trying to save for a house, need to build your emergency fund or regular savings because it is nonexistent or just have high monthly expenses, you should keep your fun money spending to a minimum until you have reached your goals or are no longer struggling to pay your monthly bills.
Your fun money budget should never get in the way of your short-term OR long-term financial goals. Before creating a budget for fun money you should always make sure your money is allocated first to your necessary expenses (think: groceries, utility bills, rent/mortgage, minimum debt payment), then to your financial goals (think: emergency fund, retirement, paying down debt quicker) and then comes the fun money budget. One last important thing to remember is that fun money should NEVER be charged to a credit card unless you can afford to pay it off in that same month. If your fun money spending leads you to being in debt, then you don’t actually have fun money to be spending.