With the end of December comes many New Year’s resolutions. One common resolution is to start budgeting. People often come up with a tight budget for January or February, do their best to stick to it, then find themselves failing because there’s no breathing room, and they feel frustrated about being unable to do anything fun.
One great strategy to get around this burnout is to account for entertainment expenses by having a “fun money” line in your budget. You can even go so far as to have a separate bank account for discretionary spending kept separate from your main financial accounts.
[See: 10 Big Ways to Boost Your Budget — Without Skimping on Your Daily Latte.]
Here’s how building a fun money account works.
Assemble a typical family budget by outlining categories for expenses such as food, utilities, cellphone bills and so on. Include an extra line for fun money. You can set this amount to whatever you wish, but it’s wise to choose an amount that’s less than what you used to frivolously spend in a month and enough that you can still do some fun things.
Whenever you spend money on something fun or frivolous, keep track of it and subtract it from that amount. When you hit zero, you need to buckle down for the rest of the month. It’s that simple.
[See: 8 Big Budgeting Blunders — and How to Fix Them.]
Over time, having a “fun money” line in your budget makes it easier to get and keep a firm grasp on your discretionary spending without allowing it to spiral out of control while still enjoying spontaneous pleasures.
For some, tracking this type of spending can be hard, so one great approach is to simply open up a separate checking account for these expenses at a different bank with a debit card.
Each month, deposit money from your main checking account into this secondary checking account. Then, whenever you want to buy something fun, use the debit card from that dedicated account. Keep an eye on the balance, so you don’t overdraw the account, of course.
Let’s say you decided to allot yourself $200 a month for activities such as eating out, getting coffee and so on. You transfer that $200 into the new “fun money” checking account on the first of the month, then use that card for your fun purchases while watching the balance. You end up effectively using it like a prepaid debit card.
If your balance runs low, slow down on the discretionary spending until next month when you can reload the account with a fresh allotment.
[See: 50 Ways to Improve Your Finances in 2019.]
The advantage of this strategy, whether you use a separate account or not, is to give yourself some breathing room to have fun with incidental expenses while still maintaining a healthy budget that moves you toward your long-term financial goals. Refusing to spend on any luxuries or outings will often feel very constraining, so this strategy works around that by giving you some freedom to spend without damaging your financial plans.
Over time, it may feel right to adjust that amount upward a little if you still feel constrained. If you’re not spending that much, it may make sense to adjust it downward and use that money for other purposes. You’ll also find that this gentle constraint helps you be more conscious of your spending choices, so that you say no to the more frivolous things while saying yes to the little treats that really matter to you.
More from U.S. News
12 Habits of Phenomenally Frugal Families
10 Fun, Frugal Ways to Spend Your Free Time
Use a ‘Fun Money’ Account to Get Your Finances in Order originally appeared on usnews.com
