We all know how important it is to save for the future, to plan for retirement, to pay down our debts on schedule, and to stay on top of our monthly bills. Any advisor will tell you that meeting your medium- and long-term financial goals will depend on doing all of these things right.
But what about your everyday life? Is it possible to enjoy some of that cash today even as you keep your long-term money goals in focus? Not only is it possible, but many financial advisors argue that fun is something you should absolutely budget for. Of course, more money often equals more fun. It’s easy to budget for the good stuff when you’re making a fortune But what about those of us living by slightly tighter margins?
In reality, we all have the right to a little fun. And we can all find smart and responsible ways to fit this fun into our monthly budgets while still meeting our financial obligations and planning for our financial goals.
There’s an ideal balance between being fiscally responsible and having fun. It just takes some smart budgeting and careful planning to achieve this balance. Within this happy medium, there are actually ways you can get some gratification out of all that hard earned money. After all, you can only delay gratification for so long before…well…before it’s too late to enjoy all that gratification.
Yes…it’s important to save money, to budget carefully based on your monthly expenses and your monthly income, and to prepare for the future. But it’s also important to live in the present, to spend money both wisely and in ways that bring color and joy to your life. Even economists recognize that a little budget line of fun money helps mental health, well-being, and your bottom line.
Of course, there’s also a middle ground between a restrictive budget and an unbridled spending free for all. We’ll explore this middle ground in greater depth below. But first, let’s take a closer look at exactly why having a little fun with your money is good for both your financial and mental health.
The Practical and Mental Health Benefits of Keeping a Fun Budget
Keeping a budget is important, but it’s also important to establish a budget that is realistic and sustainable. In actuality, putting money aside for a bit of fun in your life can be important for your mental health. When we spend money, there are numerous psychological factors at play.
For those who struggle with financial scarcity, spending can bring anxiety. Those who use spending as a remedy for emotional distress may consequently end up feeling guilty over their spending. And those who are too flippant with their finances may confront some very practical economic obstacles in life.
In other words, the connection between money and mental health is inextricable. But this is exactly why it’s so important to plan for fun. The counterpoint–a restrictive budgetary mindset–can actually be quite counterproductive for most people.
Many financial experts warn that operating on a budget that is too restrictive may ultimately lead to problematic spending behavior. To an extent, this is because of the way that we are wired as human beings. Too much deprivation can lead to impulsive behavior, which can make a budget difficult to stick to in the long run.
An article in CNBC points out that, in some ways, budgeting is like dieting. The only way to make it sustainable is to establish a balance that works within the scope of your lifestyle. Otherwise, you may be setting yourself up for failure.
CNBC points out that “You might eagerly create a new budget or start a diet in the hopes of saving enough to go on vacation or shedding a few pounds, respectively. However, after you’ve slipped up by eating a slice of cake or by spending too much on a new winter coat, you might be tempted to tear up the budget or say ‘screw the diet’.”
Such is to say that living on a restrictive budget can lead to the opposite of your intended effect. While your goal may be to save while managing fixed expenses, depriving yourself of enjoyment can carry a psychological toll. This, in turn, can lead to emotionally-driven overspending. Living on a restrictive budget makes us far more prone to impulse purchases. Indeed, CNBC notes that Americans will spend more than $5,400 on impulse purchases over the course of the year.
That’s at least one reason that, altogether, we’re toting around more than $1 trillion in credit card debt. We don’t always plan ahead for the fun and frivolous purchases, and that can result in some spending decisions which are not well thought out. This doesn’t mean we can’t make those kinds of purchases. But “planning” is the operative word here.
When you do plan for the fun and frivolous, these purchases can bring you guilt-free gratification. Indeed, Intuit’s Mint Life points out that “A fun money budget might help alleviate feelings of financial anxiety. The key is to budget safely, so you know that even if you’re spending all your fun money, your basic needs will still be met. It takes some time to adjust, but soon you’ll be able to enjoy fun purchases guilt-free and lessen your financial anxiety.”
Again, balance is essential when it comes to spending money, whether on necessities, a little fun, or even a whole lot of expensive fun, possibly in a tropical location. So how much fun money should you have? How can you set aside enough money to enjoy life today while still paying your bills and saving money for the future?
Read on to find out!
10 Money Tips So You Can Enjoy Life Today!
1. Start with a Zero Based Budget
If you’re new to budgeting, or just new to budgeting for fun, zero based budgeting may be a good starting point for you. The overarching premise of zero-based budgeting is that each dollar you make every month should have a designated purpose. The idea is that at the end of the month, you have zero dollars left to spend on purchases that don’t fit into your budget.
It may sound counterintuitive at first, but what it basically means is that your budget should account for all of your spending each month, both on fixed expenses and variables. You can do this by categorizing your monthly expenses–fixed expenses (housing, utilities, household bills); variable expenses (transportation, food, healthcare), recreational expenses (dining out, event attendance, elective shopping); savings; emergency fund, etc.
This will allow you to earmark every dollar you make for a specific fund. Mint Life explains that “Zero-based budgeting involves creating a detailed report of your expenses to have a very precise idea of your monthly budget. Basically, you decide where each dollar you earn is going ahead of time. While this takes more effort upfront, once you have your budget in place, you’ll have a much better understanding of your finances.”
Mint Life provides the basic formula you would use in order to establish this budget:
- Identify and sum up your total monthly outlay for fixed expenses.
- Identify, sum up, and calculate a monthly average for the outlay of variable expenses over a two to three month sample period.
- Subtract the total of monthly fixed and variable expenses from your monthly income.
- Split the remaining funds between your fun money budget and your savings goals.
With this approach, you’ll gain a much better understanding of what your household income is as it relates to your essential living costs. This puts you in a good position to take the following step…
2. Create a Fun Money Budget
Once you know how much you actually have left over each month after meeting your expenses, you can actually create a fun money budget that matches your spending flexibility. Your fun money fund is earmarked for shopping, vacations, event attendance, date nights, and all that other stuff that may seem frivolous but can deeply enrich your life.
Hey, you don’t need us to tell you how to have fun. Use your budget as you wish. The bigger question is, how much fun money should you have relative to your other financial goals. As the zero based budget strategy suggests, your fixed expenses should be fairly predictable, and will often be shaped by factors outside your control like rising gas and food prices or a spike in your local housing market.
But what about savings versus fun? U.S. Senator, Elizabeth Warren offers a popular strategy in her book All Your Worth: The Ultimate Lifetime Money Plan, Here, she describes something called the 50-30-20 budget.
The basic premise is that:
- You should be putting 50% of your income toward essentials–think housing, bills, food, transportation, etc.
- 20% of each paycheck should go toward meeting your savings goals.
- The remaining 30% should be dedicated to things you want–a night out on the town, a concert, a vacation fund–you get the point.
Your breakdown may differ by a few percentage points one way or another. Naturally, we all have unique variations in our personal finances and financial goals. But this is an extremely simple way to think about where you’re spending most of your monthly income, as well as a great way to make sure you’re putting a responsible amount aside for the good stuff!
3. Include Recreation in Your Monthly Budget
Speaking of the good stuff, here’s the great irony of including fun in your monthly budget. Making sure you put money aside for recreation is actually one of the best ways to prevent overspending.
When you don’t budget for fun, those impulse purchases may not necessarily make sense within the scope of your monthly income. If you don’t have the numbers straight in your head, it may not be as obvious to you when an expensive dinner out ends up cutting into your grocery budget.
That’s why accounting for your fun money budget in advance of meeting your monthly expenses is actually a great way to control your spending. According to Intuit’s Mint Life, “People aren’t as aware of their budget as they think—in fact, only 35 percent of Americans know how much they spent in the last month. If you have no budget at all or a restrictive budget because of debt (which almost every American does), then you’re actually more susceptible to overspending.”
Long story short–it’s actually more responsible to preemptively make space in your budget and your life for recreational spending.
4. Create Ground Rules
While we have advised repeatedly against living under a rigid budget, it’s still important to establish some basic rules for yourself. Place limitations on how, where, and when you spend your money.
BECU advises that these ground rules can go a long way toward making your budget work. Usually, the top rule for any budget is to ensure that you’re covering your essential costs first. From paying debts and meeting saving goals to addressing fixed monthly expenses and variable living expenses, you must obviously meet these mandatory costs before getting to the optional stuff.
BECU notes, “Unless you’re ready to make a major lifestyle change, assume your rent or your mortgage is a fixed cost.”
But BECU also goes on to note that there are other ground rules you can set for yourself that can even increase the amount of fun money left in your budget. BECU notes that there are “steps you can take to reduce some essential costs, like evaluating your grocery budget, turning down the heat or reducing your energy use at home, but you still have to keep the lights on. If you need to cut back to balance your budget, start with the nonessentials first.”
Part of your rulebook may be to search for low cost alternatives to certain household items, to clip coupons and shop sales more proactively, to eliminate monthly digital subscriptions that you don’t use, etc.
Tailor your ground rules to your lifestyle, income, and regular expenses. Once you crunch the numbers, you’ll be surprised at how much money you can save in other parts of your life. As long as you’re adhering to these rules, you’ll be in a great position to spend on the fun stuff without feeling guilty or anxious.
5. Get Your Financial Affairs in Order
Of course, in order to actually have a responsibly developed fun budget line, it’s really important that you have the rest of your financial affairs pretty well in order. If you are living with credit card or student debt, make sure you’re prioritizing your debt payments. In particular, if your debt includes high interest rates, focus on paying down these debts more aggressively. The more responsible you are in addressing any obstacles to your long-term financial goals today, the more fun money you’ll have at your disposal in the near future.
There are also certain expenses that should always be a priority including eating healthy, conducting routine auto maintenance and making timely home repairs. Don’t underspend on these and other important priorities either in the interests of overindulgence or an overly restrictive budget.
And of course, always maintain an emergency fund for unforeseen expenses and challenges. BECU advises, “A surprise car repair, medical bill or losing your job can set you back if you don’t have an emergency fund. Set a goal to have three to six months of income saved, but you don’t have to do it all at once, and you don’t have to forgo all fun in the process. Black recommends setting micro goals: Start with $100, then $500. Work your way up until you reach your bigger goal. Don’t touch that money unless it’s really an emergency.”
As long as you can fit these important spending priorities into your life, then you should also be able to set aside a few dollars for those new shoes, that night out with friends, or even that lavish vacation.
6. Identify Savings Goals for Fun Activities
On the subject of lavish vacations, you should bear in mind that some of your fun money will go toward long-term goals as well. Some of the luxuries that we desire may cost well over a month’s worth of fun money.
If you’re planning on a family vacation to Disney World, you’re going to need more than two pay cycles to save those extra dollars. This is where a fun budget can be even more valuable. Knowing exactly what you plan to put aside each month can put you on a clear and predictable track for a big purchase, a major home renovation, or a long vacation.
It can also help you reign in your short term fun money spending in favor of bigger recreational opportunities. The benefit of a well-established fun money budget is that saving for a big vacation doesn’t have to impact your everyday expenses. You may simply spend a few months refraining from dinners out with friends, unneeded home decor purchases, and other optional expenses.
This kind of sacrifice can be a lot easier to sustain in the short term when you can see the light at the end of the tunnel, whether that light is, for example, an Alaskan cruise, a Hawaiian adventure, or your very own jet-ski.
7. Make a Separate Fun Budget Account
While we’ve discussed some of the strategic steps you can take to fit fun into your monthly budget, there are also some very practical things you can do to make it easier. One of the most effective ways to create a separate budget line is to open an account that is specifically designated for fun.
Not only does this make it easier to set aside money and keep track of your fun money budget, but many accounts come with inbuilt tools that make budgeting easier. For instance, BECU suggests, “You can set up direct deposits or automatic transfers to your accounts, based on the categories in your budget, so every time you get paid your dedicated funds grow.”
This is an especially great way to start putting aside money for fun when you’re living on a limited income. You can create regular withdrawals from your primary account in sums small enough that you’ll barely notice them on an everyday basis. Then, before you know it, your fun budget line is actually big enough for that vacation or purchase you’ve been dreaming about.
Look for savings accounts and spending accounts with minimal fees. You can also enjoy a small rate of return on savings accounts bearing interest. Realistically speaking, today’s savings interest rates are quite low, which is why many Americans prefer retirement accounts and mutual funds for long term goals. But many of these accounts can include early withdrawal penalties and tax fees. This is why, for a fun budget line, a traditional savings or spending account will usually provide the desirable flexibility and a minimal cost.
8. Use Your Credit Card Strategically
Speaking of spending accounts, your fun budget could also be a great place to use a credit card. But…and we can’t stress this enough…any credit card usage must be strictly strategic in nature. It actually makes sense to use a credit card specifically for recreation. That’s because many credit cards offer rebates, discounts, points, frequent flyer miles and other valuable benefits for use on transactions like flights, hotel rooms, event attendance, dining, vehicle rentals, and a wide range of purchases through participating retailers.
In other words, matching the right credit card to the right purchase is an amazing way to save money, get money back, and recoup valuable rewards. So when you look for credit card offers, consider those with low fees, low interest rates, and a boatload of valuable spending rewards.
Now, with all of that said, using a credit card on fun stuff is not something you should do in lieu of having a full budget set aside for recreation. Quite to the contrary, you should only use a credit card for these purchases when you already have the money in your budget to back your usage. That’s because the only way to actually recoup the value of your credit card rebates and rewards is to pay your credit card bill in full every month.
While a zero-interest credit card offer may be a great way to manage a more expensive purchase over several months to a year, most of these offers are only temporary. In a more general sense, enjoying the benefits of a credit card will require you to keep a zero balance. Otherwise, interest charges can easily eclipse the financial benefits and rewards that come with your card. So the best thing you can do is build your fun money budget, use a credit card to book your hotel or flight, then pay your monthly credit card bill in full using said fun money.
9. Use Cash for Fun Money
These days, cash purchases are becoming an endangered species. In public, we’ve become accustomed to pulling out our plastic. Debit and credit cards do most of the heavy lifting in physical retail spaces. And don’t get us started on ecommerce. Thanks to outlets like Amazon, it is entirely possible to stock your household with everything you’ll ever need without ever cracking a wallet.
That means that a lot of us have more paper bills and coins lying around than ever before. As we explore in our article on the importance of keeping cash on hand, it’s always a good idea to have a few bills in your car, in your household, and in your pocket. Cash is king when it comes to tipping, emergency situations, or buying stuff during a power outage.
But it’s also a great way to squirrel away money for fun. The vast majority of American workers receive a paycheck which is either manually or directly deposited into a bank account. This means that we never actually “see” most of the money we use to pay bills and meet monthly expenses. It rarely takes the form of actual cash.
This frees us up to look at any incoming cash–from yard sales, gambling, side hustles, etc.–as a flexible part of the fun budget line.
10. Put Side-Hustle Money Toward Your Fun Budget
Speaking of side hustles, this is a great way to actually make more room in your budget for fun. It’s possible that the paycheck from your day job is already spoken for. Between the cost of your rent or mortgage, your utilities, your car lease, and the constantly rising price of groceries, the idea of spending 30% of your income on fun may seem far-fetched.
Once you get done paying your monthly bills, there’s not much money left for other expenses, let alone fun money.
It’s true–many Americans are living paycheck to paycheck. Sometimes, it may feel like you don’t have a single dollar to spare. While the idea of working more may not sound terribly attractive, getting the right side hustle can actually add a whole new dimension to both your budget and your life.
If you have untapped creativity and talent that you should probably be getting paid for, jump to our discussion on why it might be time to get yourself a side hustle.