In this week's episode, we are discussing budgeting for fun stuff. Having a spending plan keeps you on track financially, but you’ve got to cut yourself some slack - that’s when a fun money budget comes into play. This episode goes over why you need to budget for fun, how much to set aside, and how to actually make a fun money budget part of your life. https://www.balancedfi.com/fun-money-budget/
Welcome to the Balanced FI Podcast, episode 29 - All You Need to Know About Keeping Fun in Your Budget
Setting aside a bit of money each month for fun, frivolous purchases helps you stay on track financially. You’re less likely to completely blow your budget when you know you have already planned for your hobbies and random habits.
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Read: Fun Money Budget: What You Need to Know
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Source: 50/20/30 Method Is Perfect if You’re on a Budget… but Still Have a Life
Hey there, this is episode 29 of the Balanced Five podcast. All you need to know about keeping fun in your budget. Welcome to the Balanced Five podcast, where we talk about balancing intentional debt payoff, saving money, and actually living your life. I'm your host, Raelia. Small business owner, wife, girl mom, non profit co founder, and money nerd.
This is an audio version of the Balanced Five blog, because I know how hard it is to find time to sit down and read literally anything. Instead, you can get quick bits of money knowledge on the go. I want to help you learn to control your money, instead of letting your money control you. Let's get started.
Fun money is a budget category that allows you to enjoy life while still working toward your financial goals. Some people also call it blow money or spending money. But this budget category lets you buy non essential things without the guilt of ruining the family budget. It also keeps that non essential spending in check.
Including fun money in your budget is an essential part of actually sticking to a spending plan. You need some spending freedom to help you stay within the more strict limits of your budget. And that's where fun money comes into play. And my puppy is sleeping in the room with me, so if you hear weird breathing, that is her.
So what is fun money? Fun money is a budget amount that can be spent on anything that you like, even things that aren't usually part of your more frugal plan for debt freedom. You need to come to an agreement with your partner that the money can be spent on anything legal, with no questions asked. For example, if your partner smokes, the cigarettes could come from their own fun money budget, and a lot assumes that you've agreed to exclude cigarettes from your household budget.
It's also important to keep the amount reasonable, and reasonable depends on your unique situation. Income, monthly bills, debt payments, and discretionary spending. That's why you need to have a conversation. If you only have 500 a month in discretionary funds to cover entertainment, groceries, gas, and fund money, you should not budget 100 in fund money for each partner.
200 in fund money out of the available 500 doesn't leave enough to cover everything else, so that's just not a good choice. And what expenses are considered fund money depends on your situation, too. The most important thing is to decide and stick to that decision. Fund money could include snacks, hobby expenses, books, date nights, alcohol, or eating out.
But you need to agree on those things. Help staying within budget. Intentionally included funds to spend on frivolous things like lattes or a lunch out will make the restrictions in other budget areas easier to live within. You'll be less tempted to blow your entire budget if you allow yourself to spend how much you want within your fund money budget.
It's almost impossible to live forever within strict budgetary limits, no matter how well intentioned you start out. You will jump into budgeting with good intentions, with the idea that you can follow the limits you've placed. It will feel possible to live without takeout all month or without buying anything new for your hobbies.
Your budget is bright and shiny new, so you're filled with hope. But then you'll start living your budget. The habit of getting a latte on the way to work will be hard to break, especially if you never get a reward for your efforts. You'll want to buy a new book or a video game, but you didn't budget for those expenses because everything extra is going toward debt payments.
And so, you'll go over budget when you can no longer resist the temptation. You'll buy that hobby item or order takeout which throws off your whole budget. If you want to keep everything balanced, you'll have to reallocate funds from other budget categories. And that might mean that you end up short on grocery or gas money and have to make sacrifices later in the month.
It's a whole snowball effect because you didn't budget for fund money in the beginning. To avoid the budget busting cascade, you have to include fund money in your monthly budget. That's it. How much should you budget? There are many factors to consider when deciding how much to budget for fund money.
How much debt do you have to pay off still? How much are you contributing to retirement? Do you have any emergency funds saved up? And what is your take home pay? Don't budget so much that you can't meet your other obligations, though. Budgeting less for fund money will force you to get creative and frugal with your optional purchases so that you can spread those funds out further and get what you want.
I recommend budgeting 5 percent or less for total fund money if you have debt to pay off other than your mortgage, need to catch up on retirement savings, or do not have at least six months expenses saved in an emergency fund. And once you're financially secure, you can increase your fund money budget if you want to.
So, in my family, we budget about 4 percent of my husband's take home pay as fund money, and then split that total between the two of us. He's the breadwinner with a regular salary, so I have transfers scheduled after each of his paydays, so it's all automated. And we are still paying off debt now, and contributing quite a bit to retirement.
After we're debt free and have an emergency fund, we will probably increase our fund money. My husband loves to hunt and would like to invest in higher quality gear, so he'll definitely approve of a bigger fund money allocation down the road. You can also consider the 50 20 30 budgeting method. So I don't follow this method myself, but it is a nice structured way to set up a budget and still have fun.
Broad budget categories are set up as a percentage of your after tax pay. 50 percent of your pay would go towards essential expenses, like rent or mortgage, utilities, groceries, and minimum loan payments. 20 percent would be towards financial goals, retirement, investments, savings, and additional debt payments.
And then the remaining 30 percent is for personal spending, eating out, travel, entertainment, and fun money. How to incorporate fun money into your money plan. https: TheBusinessProfessor. com So, after each bi weekly paycheck is deposited into our bank account, I use the double account method. I have multiple transfers scheduled from our regular checking account to our bills checking account.
Half of the month's fund money goes to my fund money account. Half the month's fund money goes to my husband's fund money account. So we have separate checking accounts for each of our fund money balances. Half the total of the month's bill goes to our bills checking account. And then we have savings for annual expenses like propane, auto insurance auto licensing, and annual vet appointments for our dogs.
You can learn more about the double account method in the Bill Balancing Bootcamp, but the basic idea is that you use two checking accounts to separate the money for your bills and the money for discretionary spending, like gas and groceries. The course is only 27 right now, and it'll help you get a handle on your monthly expenses.
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So, back to how to actually incorporate fun money into your money plan or your budget, whatever you want to call it. Just to make things easier in my household, we each have a separate checking account just for our fun money spending. I set the accounts up with Discover Bank for two reasons. One, we already had a Discover credit card account, so it was super easy to set up connected checking accounts.
And two, the accounts have no minimum balance or monthly fees. Because the balances can drop pretty low, we don't get a lot of money deposited into those accounts and so once you spend it, you might only have like 5 left. And a lot of bank accounts will charge you fees for such a low balance. And we each have a debit card for our individual accounts, which we use to make personal purchases.
And interestingly, we both tend to use the accounts in the same general way. We make some small snack or drink purchases throughout the month, but the accounts are more used as a savings account for larger purchases that we want. So we approach purchases on a case by case basis, but the general rule for our family is if it doesn't benefit the whole family, it's a fund money purchase.
My husband has used his fund money to buy a new hunting pack. And I've used mine to buy an exercise bike. Those are things that we want individually that don't really benefit the kids. Of course, we still buy gifts for each other from the fun, the, from the family budget. They're not fun money expenses.
And we've been married long enough now that most of the time we can just choose and order our own gifts. And that has reduced gift buying stress so much, especially for me, he's really hard to shop for. So how do you actually do this? Before COVID became a thing, I would stop at a drive through ATM while running errands every other week.
So it'd be right the same day usually that my husband got paid. I would withdraw our fund money in cash and we would both use that cash. This method required us both to carry cash around or stash it away somewhere if we wanted to save for a bigger purchase. I will be honest, I have lost cash like in the house because I put it in an envelope to save for a bigger purchase and I stick it somewhere safe and it is just too safe and with my mom brain I lose it and come across it months later.
So, using cash also meant that we had to pay for our online purchases with a joint card. So, we used credit cards when we buy stuff online for safety. And then deposit that cash to reimburse the joint check in account. Although that doesn't require too many extra steps, it did add to the mental load of our personal bookkeeping.
Which is me. I do that. During hectic or busy times, things definitely fall through the cracks. And once isolation made errands nearly obsolete and cash was harder to spend, I switched our fun money system to individual checking accounts. And the accounts are all connected and we both have online access to everything, but I do 99.
9 percent of all money related tasks in our family. So I've automated things as much as possible for simplicity, but my husband understands what's going on and he's happy with the system. And that's important. You want to make sure your partner is on board with this. I'm generally happy with the setup that we have, but it does take a few days for a transfer from our Wells Fargo checking to show up in the Discover checking account.
It is a small annoyance, but it's still a consideration if you're setting this system up on your own. When to use separate accounts for fund money. So separating the fund money makes it easier to keep track of what each partner has saved and spent. You could absolutely combine the funds, but that muddies the waters.
You obviously don't need to go through the effort of setting up separate checking accounts with separate debit cards, but it does help. Keeping the fund money separate is just cleaner and easier. The decision is completely up to you, but I do recommend using separate accounts or cash just to make things a little easier from a relationship standpoint.
Fund money can improve your relationship. A big part of setting up a fund money budget is coming to an agreement with your partner about how it can be spent. I'd recommend not asking about, or even paying attention to, what your partner is spending money on, as long as they're sticking to the overall fund money budget and not overspending.
Having separate funds and healthy boundaries will reduce relationship tension over money. And trust me, I would normally be annoyed by how much money my husband wants to spend on hunting stuff. It always seems excessive to me. And he doesn't understand why I spend as much as I do on drive thru caffeinated drinks.
Separate fund money accounts allows us to save money. Both spend on what's important to each of us, even if the other doesn't value it. We don't disagree about these purchases anymore. So, basically, I don't get mad at him for wasting budgeted money on what I think are silly things. We get to spend our money how we want, without judgment.
Should your fund money be equal? Once again, deciding whether your fund money should be equal for both partners depends on your family. In my household, we both get the same amount because that's what we agreed on. It could make sense to have different amounts. Maybe one partner spends more time driving and likes to buy lunch on the go.
A stay at home mom might need more fun money to cover random activity costs. A smoker would spend more than a non smoker. Open communication is key here. Discuss what is considered fun money, what is not, and how much you each expect to spend. Agree on each partner's fund money budget. You can always adjust the amount you each receive.
I recommend having a budget discussion at least every month, or even weekly, especially when you're new to budgeting. For your first attempt, pick a fund money number and see how it goes. Remember that fund money helps you limit impulse buys, overspending, and additional credit card debt. Fun money is a control method that still allows for freedom to spend on what makes you happy.
To recap, setting aside a bit of money each month for fun, frivolous purchases helps you stay on track financially. You're less likely to completely blow your budget when you know you already have planned for your hobbies and random habits. I wouldn't budget more than 5 percent of your take home pay for fun money if you have debt, are behind on retirement savings, or don't have a fully funded emergency fund.
Once you're a little more financially secure, you can increase the amount of fun money as long as you're still able to meet your bigger financial goals. What should you do next? Talk to your life partner or your money accountability partner about working fun money into your budget and your life. Set up a couple of ground rules about what counts as fun money and what comes out of the regular budget.
Consider opening additional checking accounts for fun money to keep things easy and cash free. And you can make the rules what you want to work with your life. Thank you for listening to this episode. If you enjoy the Balance Five podcast, I'd be so grateful if you left us a review on iTunes or told a friend.
As always, you can head to balancedfi. com to connect with me and stay in touch. I'm on Facebook, Instagram, Pinterest, and Twitter at BalancedFI. Until next time, stay intentional and look for balance.