MythTip: Budgeting For Fun!
On a special request, this post will take a quick look at how you can approach the task of deciding how much “fun money” to allow in your budget.
Not Science, But Close Enough
Like lots of other aspects of personal finance, the decision of how much fun money is too much depends on a huge number of factors, all of which will vary from person to person and family to family. And, while it is not an exact science, there are a couple of different ways the question can be approached and solved.
Let’s jump straight to the heart of the question. Exactly how much, in total, should be budgeted for fun? In general, in should be a small percentage (less than 10%) of your monthly income, but there are always exceptions. It is generally far more effective to take a look at three factors when deciding the exact dollar amount: what you like to do, how much it costs to do it, and how often you like to do it.
Write Down Things You Like To Do
Start out by writing down things your family likes to do for fun that cost money. This can include everything from baseball games to fast food outings. Just list what they are for now.
Note How Much You Usually Spend
Next, go through your list and estimate how much you spend on each activity. $20 for dinner? $6 for ice cream?
Figure How Often To Do Each Activity
At this point, it’s time to decide how often you like to do the activities you have listed. Count how many times per month you typically would do the activity in question. It is okay to use partial months, here. If you usually go only once every 3 months or so, then write down .33 times per month. If you like to go once a week, then write down 3 or 4 times per month.
Now, take the dollar amount for each activity and multiply it by the number of times per month, then add all of those numbers up. This should give you a number of dollars per month to budget for. Remember that this number is not set in stone, and that you can adjust it as you need to. The screenshot below will give you an idea of how the whole system works.
At this point, it would be good to remember that just because you have budgeted money for fun does not mean that you need to spend it. In the example chart above, baseball games are estimated to be a once every-other-month activity (times/month = .5). If you maintain your budget, then every other month you would have a little extra so that the baseball game could be afforded. This method of estimation does not mean that you must spend “according to schedule”. In the example above, it is perfectly acceptable to go out fine dining three times a month and forego all other activities. The point of this method is to get to the bottom line, not to schedule your future activities.
Cutting Corners Now, what to do if you find your fun budget is too large to enable you to reach your savings goals? If you find yourself in this dilemna, then you need to take a step back and examine your priorities. What is more important to you, the savings or the fun? The answer to that question will determine what you should do. If you would rather have fun than save, then you should reduce the amount you save (remember,a budget that is too strict will never be followed, and thus becomes useless!). If you would prefer to save, then you will have to find a way to reduce how much you spend on fun activities.
There are a few ways to change how much you spend each month for fun. The first is the most obvious, but also likely the hardest. Reduce how often you go out for fun. Go out to eat less, wait for movies to come to the dollar-theaters, etc. This would undoubtedly work, but it can be hard. A slightly easier option is to try to reduce the cost of the activity. Buy cheaper tickets, order cheaper menu items, etc. A less onerous, but also less obvious, approach is to invest in the things you love. Let me give an example. Let’s say you love to go to the batting cages. Instead of paying $5 to go to the batting cages, you could instead pay $15 for a bag of baseballs and go to the park. The baseballs may be more expensive at first, but over the long run, they will prove a very profitable investment. Using the baseballs once a month for a year would save enough money to make the basballs an investment returning 386%!!! Note that in order for such an investment to be effective in saving you money, you must USE your investment. If you buy a bag of baseballs and sit them on a shelf, then it is a pure loss, and you would be better off going to the batting cages.
Another way that you can help motivate yourself to spend less money on fun activities is to remember what you are saving for. Remember, savings are not accumulated for no reason. When you are deciding if you would prefer to save or spend, consider what you are really getting when you save. Today’s savings are tomorrow’s purchases. So when you save today, you enable yourself to buy tomorrow. So what do you want to buy tomorrow? A nice retirement? A trip to Disneyland? A new home? The ability to spend your days however you wish, with no need to work? Remember that your savings are the only way that you will acheive your goals and have the lifestyle you have always wanted.
Posted on 18 Aug 2008