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By Dave Ramsey
How does an indulgence allowance sound? You know, a little guilt-free spending that doesn’t find its way to creditors, insurance agents, utility companies, or grocery stores?
It’s called fun money and it’s just for you.
Fun money (or pocket money) keeps you sane as you continue to make the tough, daily sacrifices it takes to win with money. We like to think of it as the icing on the budget—a sweet topping that, in moderation, can actually help you reach your money goals. Here’s how it works:
Why You Need It
You need food, water and shelter. You don’t need to get a manicure or play 18 holes of golf. But here’s what happens if you don’t budget some “me” money: you’ll spend it anyway.
The reason a cash flow plan works in the first place is that every dollar gets a name. So even if you have the discipline of a monk and vow not to spend on small luxuries, trust us, you or your spouse will eventually buy something just for fun. And then your beautiful budget is blown!
So do your budget a favor and factor in some fun before the month begins.Because the more realistic your plan is, the more likely it is to actually work.
What It Isn’t
Fun money often gets lumped into one of a few categories: your entertainment fund, your restaurant fund or even your miscellaneous fund. It’s none of these. It’s a separate amount to spend however you want, whenever you want.
The beauty of pocket money is you don’t know what you’re going to buy with it yet.You can use it as the mood strikes you, without guilt.
But try to avoid the temptation to use your fun money as a catchall for household items you forgot to work into the budget. Or if your light bill and car repairs exceed your monthly expectations, tweak your cash flow plan or dip into your emergency fund to seal the leak. Your fun money is not overdraft protection for life’s unexpected expenses. Protect it—or you’ll find a thousand non-fun ways to spend it.
How Much to Budget
Your pocket money might be $10 or it might be in excess of $100 per month. Depending on your income, debts and long-term goals, the amount you budget could be drastically different from your neighbor.
If you’re just starting Dave’s seven Baby Steps and working toward building your$1,000 emergency fund, keep your pocket money to a bare minimum. But if you’re out of debt and working toward saving for a house or retirement, you have additional wiggle room. Just make sure you’re not spoiling yourself rotten and abandoning your long-term goals in the process. Ultimately, only you know how much fun you can afford.
Remember to Have Fun!
It’s okay to set aside some time and money for yourself each month. Even a small indulgence can do wonders for your money morale. Just be sure to set your fun allowance before the month begins and then stick with it no matter what. A healthy budget is a lot better with a little icing.