Fun Money

A critical category in any spending plan is “fun money”. This money is intended to be completely discretionary. It can be used for anything. The other categories of a spending plan capture everything we can reasonably anticipate, and the things that make up a good life within our means. The “fun money” category is intended for things you might want that are unanticipated or can’t be justified in the other categories.

The “fun money” category must be limited. When it’s limited and you know it doesn’t interfere with your goals, it allows for spontaneity and removes guilt. You are deliberately giving yourself freedom to spend some amount of money on whatever you want – the intention is at the point of allocation, which allows you to be wholly unintentional when you spend it.

“Fun money”, in our household, is used to eat out (when we’re not together and it’s not in another category, such as “food”), for clothes (beyond the “clothes” category), and anything else we want that we don’t capture in some other category. There are often some random Amazon purchases (I just bought two books), some hobbies, and often wine or beer (we don’t include this in other categories – such as the food category – because we want to limit our intake).

Of note is that we never use “fun money” for debt. “Fun money” would be the first category to be eliminated from our spending plan if we needed money for something else, such as something very unanticipated or expensive. If we financed something using this category, then we wouldn’t be able to eliminate it if we wanted or needed to. We also don’t use fun money to finance something because it’s already so limited. Limiting it further would feel disappointing. For example, if you have $100 per month of “fun money” but finance something (such as with AfterPay or Klarna) for $50 a month, then you only have $50 a month until it is paid off. When the category is already restricted, like this one is, it vividly demonstrates how limiting debt can be.

The “fun money” category serves as a buffer that provides peace of mind. On one hand, you’ve created space for casual tempting transactions. On the other, fun money serves as the first category in your budget to make drastic changes to accomplish a new goal or handle a critical event without having to restructure all your other categories to make the space.

It's imperative you have a “fun money” category in your spending plan if you have the money to allow for it. We need to be able to have some guiltless spontaneity. Setting boundaries around it and in conjunction with the rest of the spending plan means you know it isn’t harming your other goals, while still giving you the freedom to enjoy some random pleasures.