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I hope I haven’t overstated the fact that budgets are awesome tools to help you get your money on track. And they are not as restrictive as people think they are. On the contrary, I’ve had much more freedom with my spending since I have been on a budget, and have still saved more money than I did when I was not on a budget. This is why I say all the time that you can SPEND MORE and SAVE MORE AT THE SAME TIME!
How Does Spending = Saving?
When you first get on a budget, most people are gung-ho about finally saving towards their goals. But there is also a fear that their days of fun are over. No more eating out, no more shopping, no more entertainment, no more indiscriminate spending at the dollar store on water guns. You have to put aside your desire for enjoyment, grit your teeth, and bare the consequence of being on a budget. But, I started this site in an effort to remove the word budget from your curse word list, and try to re-categorize it as a word that bring excitement and anticipation. And one way that I like to do that is to encourage people to spend more money.
Psychologically, I believe that removing all fun things from your budget will completely crush your motivation and cause you to ditch your budget altogether. Who wants to be on a plan that says “pay all your bills, and NO POPCORN FOR YOU UNTIL YOU’RE OUT OF DEBT!!!!” Not me. I would throw that plan away faster than a copy of ‘Star Wars: Episode 1 – with Jar Jar Binks commentary.‘ I’d rather budget in a few dollars for some fun than strip away all semblance of having a life.
I have found that just having a “spending cash” line item in our budget helps keep us sane. We budget in $60 a month that can be spent on whatever catches our eye during that month. If we did not have this cash, we would end up blowing our budget, not caring, and probably spend hundreds a month on things that our “outside of the budget” because we’re already screwed it up, anyways. Having a set amount of cash for indiscriminate spending give us the freedom to allow a few “impulse” purchases a month, but keeps it within a range that won’t affect our goals. And honestly, we say that we can spend it on whatever we want, be we are more discriminating of this cash than any other spending we do. The key is, once it’s gone, it’s gone, and it does not refill until the next month.
How Much Should You Budget?
So, now that you know that spending money wherever you feel like can save you money in the long run, how much should you budget for it? I think there are a few factors that this depends on. First, if you are spending more than you make currently, this amount should be very small. You need to go through he Budgeting Basics Series and get your finances on paper before moving forward with a “spending cash” amount. Once you have your finances under control, you should look at how much “Miscellaneous” spending you do each month. If any of that spending cannot fit into an existing category, you may need to allow that amount in your “spending cash”.
My wife and I are allotted $60 a month ($40 to her, $20 to me) for spending cash each month. This represents less than 5% of our take home pay. I suggest sticking to that rule if you are adding spending cash to your budget. Less than 5% (maybe closer to 3%) of your take home pay dedicated to indiscriminate spending. This will allow you (and your spouse, if married) to have a little fun during the month, and know that you aren’t blowing the budget. But, there is one important rule to this: YOUR SPENDING CASH MUST BE ACTUAL CASH!!!! This is so that you are literally unable to overspend on this budget item. I hand my wife $40 at the beginning of each month, and stuff my wallet with $20, and we both know that once that cash is gone, we have no more money to spend on random lawn ornaments or garage sale finds. I’m not saying we haven’t whipped out that card on occasion to spend on non-budgeted items, but knowing that we have a limit helps us not overspend too much.
What Can You Spend The Money On?
I’m glad you asked. I have put together a specific list that you must adhere to if you want to use spending cash properly:
Seattle Mariners baseball tickets: These are probably worth less than the paper your money is printed one, so have fun watching an opposing team come in and shut them out……again.
Mint.com: Shameless plug for a budgeting tool that you NEED to get started on. Seriously, why are you even here if you aren’t on Mint?
Journey tickets: It’s Journey. Need I say more?
Anything else your heart desires: This is what spending cash is for. You want to buy 1300 balloons and see if you can float away like the guy in “Up”? Go ahead. You want to buy 16 tacos at the local taco bell and see how many you can eat in 2 minutes? Done. Want to buy lottery tickets and start planning how you’re going to buy an island in the Caribbean and have Johnny Depp sail a ship to it every month? Do it!
Your spending cash puts the “get” back into “budgeting”. Spending is a GOOD thing. So give yourself a little “fun money” and add the spending cash line to you budget. You can thank me later 😉
Comment: Do you budget in any fun money? How do you end up spending your cash during the month? If you don’t have any spending cash in the budget, why? If you don’t budget your fun money, do you find yourself spending WAY TOO MUCH “Misc” money during he month? Also, why does the “close door” button on every elevator seem to never work?