How Much Should You Spend on ‘Fun,’ and How to Manage Your Budget for It, Life in canada

Estimated reading time: 11 minutes

Former US President Donald Trump once told a story of a friend who always boarded only first-class flights despite only being up and coming. Trump said he would always criticize his friend for mismanaging his funds at the time.

Many years later, the friend turned out to be successful. It turns out Mr Trump’s friend needed to fly first class to be in a particular state of mind to serve as a morale-booster for him.

For this person, flying first class was ‘fun.’ For other people, it is lodging at a fancy hotel for a weekend or watching their favorite sports team live.

Regardless of our financial goals, debts, or monthly income, we all need to spend some money on sentimental indulgences.

But when does it become too much? How much money should you spend on ‘fun’?

With many adults living from paycheck to paycheck, it’s easy to see why people struggle to balance spending on fun and necessities.

But it doesn’t have to be so. You can spend on ‘fun’ and manage your budget for it.

Discover how in this article.

What is ‘Fun’ Money?

‘Fun Money’ represents a portion of your income set aside to spend without guilt on your choice of non-essential delights. It is the money you spend on your wants and not your needs.

Allocating a percentage of your income for fun can help you control your spending to keep you on course for your financial goals without forfeiting spending on items and experiences that enrich your life.

It delivers a best-of-both-world experience, allowing you to have Kate and Edith regarding your wants and financial goals.

Many misconceptions often arise about what qualifies as ‘fun,’ as sentimental values differ from person to person.

The following are some of the things most people consider to be ‘fun.’

Recreational traveling
Gambling
Sporting activities
Attending musical concerts, festivals, and open mic sessions
Clubbing
Shopping
Video gaming
Golfing
Gym Memberships
Manicures, pedicures, and hair treatments
Dining out

The rule of thumb for this categorization is whether such an activity sparks joy in you despite whether or not it can be considered unnecessary.

Being ignorant of fun money might make you deny yourself of some experiences you crave due to financial anxiety or guilt.

As a result, you might be unaware of the right time and place to save or spend.

Importance of ‘Fun’ Money

How Much Should You Spend on ‘Fun,’ and How to Manage Your Budget for It

Spending on things you enjoy isn’t irresponsible. It plays a crucial role in helping you reach your financial goals.

The following points will help you see why fun money is important:

It Curbs Overspending

Did you know nearly 40% of Canadians spent more than they intended during the 2022 holiday season?

The constant urge to buy things is real, and you don’t have to shut it off completely, as that might not be sustainable. Instead, you want to keep it to the barest minimum.

That’s where ‘fun’ money comes in. It helps you accommodate those impulse buys without allowing it to affect your financial well-being.

Studies have shown that individuals with no or a restrictive budget are prone to overspending. The lack of budget is often what leads to emotional spending.

This term represents a person’s tendency to splurge on certain things regardless of whether their finances can accommodate them, all because they haven’t spent anything fun.

With ‘fun’ money, you are fully aware of the funds available for splurges.

This awareness guides your spending habits and ensures you don’t go overboard.

It Improves your Mental Health

Knowing you can comfortably spend on your guilty pleasure has a feel-good vibe.

On the contrary, post-purchase guilt is almost inevitable when you don’t allocate some money for fun.

You might think the money you spent on the things you love should have been for a necessity.

This feeling of guilt and uncertainty also results in a condition called “spaving.” Spaving means “spending money to save money,” according to consumer finance and budgeting expert Andrea Woroch.

Many people do this to get a better deal that saves them some money. But, it isn’t always the best deal, depending on their circumstance. However, they couldn’t tell due to the lack of an appropriate fun money budget.

However, knowing that your necessities will still be cared for regardless of your fun purchases significantly reduces your financial anxiety.

Think of it as permission to enjoy your bouts of hard work. This feeling of reward has been shown to improve a person’s mindset and boost their morale.

It Makes Budgeting More Effective

Allocating funds for fun improves the effectiveness of the budgeting process and its implementation.

For many individuals, budgeting processes are tiresome and unenjoyable. However, introducing the concept of ‘fun’ money might change their outlook and make them more involved.

Think of it as squeezing out funds for that item or activity you’ve longed for. And, suddenly, you get more meticulous and invested in your budgeting session.

Likewise, you’re more likely to execute the budget to the letter if you know it means having what you’ve always wanted without sacrificing your necessities. It helps facilitate financial discipline.

It Prevents Money Fights

Setting aside fun money might be even more vital for relationship folks to maintain peace. As you might well know, money is one of the leading causes of relationship conflicts.

Having different wants, needs, and financial discipline levels can cause partners to restrict each other’s spending or affect their budget.

As a result, this may trigger various reactions that may affect the relationship.

However, including ‘fun’ in the budget helps to avoid this because each partner enjoys all the other benefits listed above.

They can curb their overspending, boost their mental health by spending guilt-free on the things they love, and, as a result, gain the motivation and morale to make both the budgeting process and its execution more effective.

This way, ‘fun’ money can help handle a spouse who spends too much money.

How to manage your budget for ‘Fun’

Managing your budget for fun is about balancing meeting your needs, having fun, and reaching your financial goals. There are different routes to this destination.

The following are some tips that could make your budget cover all three aspects:

Use the 50/30/20 Rule

The 50/30/20 rule dictates that:

50% of your income must be dedicated to your needs or non-negotiable required expenses. E.g., rent, mortgage, insurance, etc.
30% of your income should be dedicated to your wants, I.e., your fun budget
20% of your savings must be allocated to your savings and debt repayment

This simple allotment ratio helps to keep your financial budgeting straightforward. It also helps you keep yourself in check in case you’re overspending.

The Pot Method

You can extend your budget and cover some ‘fun’ things by setting up a ‘savings pot’ for them.

This method is especially suitable for pricey ‘fun’ things like vacations and dream cars. Instead of cutting too deep into your monthly income and inadvertently affecting other portions of your budget, you can gradually save up for such thrills.

Setting up direct monthly debits into the savings pot from your monthly income is a good way to execute the pot method.

It is important to ensure that the monthly debits are small enough to be a part of your monthly ‘fun’ money to avoid affecting the overall budget.

Take Advantage of Bonuses and Vouchers

Being on the lookout for bonuses and vouchers can help you stretch your budget to accommodate more fun activities at little or no cost.

The goal is the experience and not on spending. So, look for perks through memberships, clubs, or websites you’ve joined. They may offer reward deals that let you tap into experiences at no cost.

For instance, someone who catches ‘fun’ through gambling must choose casinos with welcome offers like those on this list for January 2024.

Likewise, those who are into movies must check out coupons like cinema gift cards to get a certain percentage off the normal price.

Zero-based Budgeting

Zero-based budgeting is a strategy that requires itemizing all your expenses across a fixed timeframe to know everything you need to account for.

It helps you allocate every unit of your income to a specific purpose. This technique has no room for oversight.

You could start using a simple pen and paper to itemize anything you spend money on and how much you’re expected to spend on them using your bank statements.

Next, you want to separate fixed expenses like car payments, rent, mortgage, or insurance premiums from variable expenses like utilities, dining out, and home maintenance costs.

You’ll then total the fixed and average costs of variable expenses monthly before deducting that value from your monthly take-home.

Finally, you can share the remaining funds between your savings, financial goals, or fun money.

This way, you have a clear picture of the financial playing field with a good idea of how your money is spent.

Review Your Budget Regularly

Managing your budget for ‘fun’ shouldn’t just be a flash in the pan. Instead, it should be reviewed repeatedly to ensure things are still on course.

Different things happen after a budget is set. Prices fluctuate due to inflation, new needs arise, and new opportunities open.

You must stay on top of the situation to ensure your projections apply for the period under view.

Your budget review process starts with comparing your actual spending and income with your budgeted amount.

Doing this will help you monitor the difference between reality and your expectations so that your ‘fun’ money will not be tampered with.

Should there be noticeable differences, you must analyze the possible causes and projected effects on your financial goals.

You must review the earlier assumptions and make appropriate allocation adjustments.

These changes may increase or decrease your ‘fun’ money. However, it will ensure that you’re in the right place financially.

Give Yourself an Allowance \ Pay Yourself First.

The Pay Yourself First technique is another budgeting technique targeted at tackling your necessities first and dealing with your wants later.

It involves paying for your needs immediately after receiving your monthly income and leaving the rest for your wants.

Implementing this technique involves the following steps:

Calculating your monthly income
Calculating the total cost for your needs
Calculating the total cost of your financial goals
Setting a timeline for achieving them
Dividing the total cost of the goals by the total number of months meant for achieving such goals
Summing up the total monthly cost of your needs and the monthly cost of your financial goals before deducting that from your monthly income.
Spend what’s left on your wants. This leftover represents your ‘fun’ money.

Make Your Luxuries at Home

Once again, the point about having ‘fun’ money is so that you can have fun while pursuing your goals.

So, if you can find a way to have the fun you crave without spending as much, you should take that route.

Making your luxuries at home is one of such inexpensive ways. If a fancy date night is your idea of romantic fun, try setting a table in that extra space in your home.

Whip the candles and a nice bottle of wine, and make something delicious for your significant order. The effort might make more of a difference for some people.

This alternative might relieve the financial stress of breaking the bank at an expensive restaurant.

You could also get creative with fun activities like gambling by inviting your friends to games or movie nights. Furthermore, you could learn how to make copycat homemade Starbucks drinks to authenticate the experience.

Try New Hobbies

Some people spend on the same activities repeatedly without getting new experiences.

This concerns your fun money because ‘fun’ money is expected to buy you experiences that make you feel better.

When you spend time on an activity that doesn’t give you that feeling of enjoyment, there’s a tendency for you to buy something else on impulse to make up for it.

Instead of this, it is advisable to ensure your budget delivers the best kind of experience. So, you must be intentional enough to try out new hobbies.

The things you enjoy do not necessarily have to be expensive. You could try the following:

Nature-related activities like hiking
Sending the kids on summer camp
Game night
Picnic at the park
Attending a community concert, etc.