If you’re busy paying bills, repaying debt, and taking care of a hundred other expenses, and have barely any money left over at the end of the month for yourself, then you’re among the 60% of Americans who are living from one paycheck to another. Setting aside money for yourself is the concept for fun money and if you don’t budget for it, it can go out of hand.
This kind of lifestyle can make it very difficult for you to manage your finances and set apart money for the future let alone use some of it to have fun. And if you do use some part of your money for something fun, you end up feeling terribly guilty about it. Sounds familiar? Then you’ve come to the right place.
Have you heard of the concept of fun money before? If you have, we hope you’re saving up for it. If not, here’s a little look into it, how you can budget for it, and how it can help relieve you of financial stress.
What is fun money?
Fun money is the amount you set aside to spend on the things you want apart from the things you need. But how can you set aside money to have fun when you’re barely able to manage to pay off your bills? Here’s how – through the magic of budgeting. Budgeting is the one crucial life skill that can help you manage the flow of your money better and gain control over your finances. As you learn to create budgets and stick to them, you’ll be able to pay your bills, reduce your expenses, save money, and even keep some of it left for fun as a reward for all the good work you’re doing with being financially responsible.
How does fun money work?
Let’s face it, budgeting is not the most exciting thing to do in the world. Most people would rather do something else more fun with their time than create budgets for their expenses. But what if budgeting was made fun? This is where fun money comes into the picture. You carefully budget for all your expenses, savings, debt repayments, and investments, and then keep some money aside for your fun fund.
The exercise of budgeting your money carefully so that you have fun money left over is what makes budgeting an exciting activity. And when you spend this budgeted ‘fun amount’, you don’t have to feel guilty about it either. Not only do you achieve your financial goals, but you also get to have fun at the end of it every month too! This helps a lot in relieving your financial stress, eliminating guilt, and improving your mental health.
How to budget for fun money
There are various budgeting strategies that people use according to what works best for them based on their financial goals. The way to measure the success of a budget is to see if it covers all your expenses and helps you save up for the future while leaving you with a bit to enjoy as well. Here are a few strategies used by successful budgeters.
The 50/30/20 rule
In the 50/30/20 rule method, your monthly income is divided into the following:
- 50% for your needs
- 30% for your wants
- 20% for debt repayment and savings
Your needs are the essential expenses required for daily living. These include rent or mortgage, transport, utilities, food and groceries, and basic debt payments. Your wants include all expenses that are over and above your needs. This also includes your fun money. In fact, any “want” should be part of your fun money.
If you’re overwhelmed by the thought of creating a budget, this method is a good way to start. It is easy to follow and you can segregate your income quite easily into the three buckets. It helps quickly compare how much you’ve been spending in each category. This gives you an idea of how much you need to cut back on in order to stay within the specified budget for each category. As you progress in your budgeting prowess, you can play around with the percentages and increase or decrease them for the three groups based on your financial goals.
In the zero-based budgeting method, you make a detailed statement of every single expense so that your monthly budget is accurate to the last dollar. You have to decide and write down how you are planning on spending every dollar you earn. This method involves quite a bit of work, but it helps you be thorough with your budgeting and accountability. This method will be apt for you if you want to have complete control over your finances and want to know where every dollar is going.
Here are the steps you need to follow:
- Write down your recurring and fixed expenses.
- Calculate the average of your variable expenses over the past 3 months and write them down as well.
- Deduct the total of your fixed and variable expenses from your monthly income.
- The remaining amount can go into savings, investments and fun money.
The ‘pay yourself first’ method
The “pay yourself first” method is exactly what it sounds like. As soon as your monthly income comes in, you pay yourself. That means you pay for all your necessary expenses right away. The rest of your income can be for your wants, including your fun expenses. This way your needs will be taken care of immediately. You won’t have to worry about meeting them later on during the month. This gives you the freedom to plan your wants accordingly. Here are all the steps in this budgeting method:
- Calculate your monthly earnings.
- Total your average monthly expenses and deduct the total from your monthly income.
- Calculate your contributions towards savings, investments, and other financial goals and deduct them also from your monthly income.
- The remaining amount is your fun money.
How much fun money is too much?
There’s no hard and fast rule as to how much money you should spend on fun activities. It depends on every individual’s income and expenses since these are different for each person. The rule of thumb, however, is to make sure all your needs are met. Ensure you pay all your bills off and you are able to meet your debt repayments every month. After this, make sure you put about 10% to 20% of your income into savings. Then put another 10% into investments and your emergency fund. The rest is for you to enjoy.
That said, if you feel that you can reign in your fun money spending a bit for a few months, you should focus on paying off a higher portion of your debt every month. This way you’ll pay off your loan sooner. You can save a whole lot of money by not having to pay that much interest as well.