Is “fun money” part of your financial plan? Here’s why it should be

When you think about financial planning, you might focus on growing your savings and investments, preparing for retirement, or leaving a financial legacy for loved ones.

But it’s also important to leave room for enjoying life in the present day.

This can be easier said than done. When you’re focused on growing wealth for the future, treating yourself can feel out of place. You might feel like you’re letting yourself – or others – down by “wasting” money, or perhaps you’re worried you’ll fall short of your long-term goals.

But spending money on things you love can enrich your life and benefit your wellbeing. By including “fun money” in your financial plans, you can strike the right balance between enjoying life in the present and growing wealth for the future.

Keep reading to discover why fun money should be part of your financial plan, and to find tips for creating a budget that allows you to enjoy spending.

Budgeting for fun money can help you enjoy spending guilt-free

You work hard for your money, and you deserve to enjoy some of it without feeling guilty.

By earmarking a set amount of fun money in your regular budget, you can enjoy new experiences, purchase nice-to-have items, or treat yourself to a much-needed break.

Whatever you choose to indulge in, you can spend without feeling guilty or worrying about the cost – provided it fits within your allocated budget.

You may find you spend the same amount (or even less, as discussed later) as you would without a budget. But giving yourself this allowance can mean you get more enjoyment out of your purchases.

Setting spending limits can help avoid impulse purchases

When your spending is capped by a fixed budget, you might find you spend less impulsively.

A fun money budget can help shift your mindset, encouraging you to evaluate the value of each purchase.

Let’s say you have a monthly budget of £200 to spend as you please, and you’re tempted by an item that costs £50. Previously, you might have thought “it’s only £50”. But with a budget, you might think “is it worth a quarter of my fun money?”

You may still choose to make the purchase, but you’ve made the decision intentionally by questioning whether it’s worth giving up a portion of your budget.

This mindset might lead you to make fewer impulsive purchases overall, leaving more of your budget available to spend on things you love.

Intentional spending can help boost your wellbeing and enrich your life

Keeping to a strict budget with no allowance for enjoying yourself can be challenging. You might find you miss out on fun experiences and deny yourself things you really want.

While this might mean you can set aside more money for your future, it can lead to a fairly limited lifestyle in the present. This can have an impact on your mental health, particularly if you limit your social activities or deny yourself things you actually need in order to avoid spending.

Spending on things that bring you joy could enrich your life and boost your overall wellbeing. A study published by Harvard T.H. Chan School of Public Health found that, of the 300 participants, happiness increased for those who spent on:

• Charity
• Experiences
• Education
• Personal care
• Gifts
• Time-saving purchases

None of us knows where life might take us in future. So, allow yourself to enjoy life in the here and now, while building towards your long-term goals.

A realistic budget can help you stay on track to achieve your financial goals

Without budgeting for fun money, you might find you spend inconsistently and deny yourself treats in some months while splurging on large expenses in others.

If you’re not actively tracking and managing your spending, you may be more likely to overspend. Likewise, if your budget is unrealistically low, you may find you consistently go over budget. As a result, you may have less money left over to save and invest towards your long-term goals.

By allocating funds to enjoying yourself, you can help ensure you stay on track with setting money aside for the future. Of course, you may still spend more in some months than in others. But with a fixed budget, you can keep your overall spending in line with your total allowance.

How to create a fun money budget

Ultimately, budgeting for fun money could help you enjoy intentional spending without feeling guilty, helping you to spend less while boosting your wellbeing.

Here are a few tips to help you get started:

• Define what counts as fun money. For example, you might consider whether clothing, holidays, takeaways, and home décor are included or come from a separate budget.
• Calculate how much you currently spend on those purchases. It may help to work out your annual spending as well as your monthly spending, to track inconsistent expenses.
• Review how much you wish to set aside each month for your wider financial goals, such as savings, investments, and pension contributions.
• Based on your current income, expenses, and financial goals, determine whether you need to reduce your spending, want to maintain your current level, or can afford to spend a little more.
• Establish your monthly fun money budget. If you’re in a couple, you may wish to allocate separate allowances or share a combined pot, depending on what works for you.
• Determine how you’ll track your spending. You might prefer to use an app, a spreadsheet, or budgeting tools offered by your bank, for example.

By following this process, you can help keep your spending in line with your wider financial goals. So, you can enjoy spending without worrying about what it could mean for your future.

Get in touch

Creating a household budget can be complex, particularly if you have multiple income sources, financial goals, and current priorities to consider. We can support you in creating a comprehensive budget that works for you and your family, using cashflow modelling to show how spending, saving, and investing could impact future outcomes.

To find out more about how we can help you, get in touch.

• Marnel Stafford: email Marnel.Stafford@fosterdenovo.com or call 07305 970959
• Ryan Edwards: email Ryan.Edwards@fosterdenovo.com or call 07591 758136

Alternatively, you can call our office on 0207 469 2800.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

The Financial Conduct Authority does not regulate cashflow planning.