‘Want’ Money Can Help You Stick to Your Budget
|June 6, 2013|
Some people call it “mad” money, others call it “fun” money, and I call it “want” money. Whatever term you use, many personal finance experts say it’s important to have some money designated for splurges.
I love the definition of “mad money” from FreeDictionary.com: “Money for frivolous purchases or little luxuries; money for a bit of riotous living it up.”
Everyone needs some “riotous living it up” from time to time, right? Even if you’re trying to get out of debt, setting aside just a small amount of want money each month can help keep you from feeling deprived and prevent a scrimp-and-spend cycle that can lead to more debt.
But just like the rest of your money, mad money works best if you budget and plan rather than frittering it away. Here are some of the things I’ve learned, along with a few expert tips on making the most of want money:
1. Put your needs first. One thing I learned early on about want money, from one of my favorite personal finance books (“All Your Worth” by Elizabeth Warren and Amelia Warren Tyagi) is that wants should never trump needs. Make sure your rent or mortgage, utilities and other needs are taken care of before you even think about allowing yourself some fun money. If you’re having trouble paying for needs without going into debt, you might need to meet with a credit counselor and make some big changes.
2. Define wants. Certain items, such as clothing, fall into a gray area. You might need to be brutally honest with yourself to determine whether a gray-area item is a want or need. For example, if my last pair of jeans has a hole in it, I need a new pair. But if I’m bored with all my summer shirts and want something pretty to wear Friday night? That’s a want. New underwear? Need. A cool pair of earrings from Etsy? Want. You get the idea.
3. Decide on an amount that works for you. In “All Your Worth,” the authors recommend allocating 30 percent of your budget to wants — with the rule that once your want money is gone, it’s gone. To some, that amount might seem high. My husband and I spent a lot of time discussing amounts — the number that felt right to him was much higher than the number I wanted to go with. We compromised by agreeing to go with a lower amount until we were out of debt, and we bumped it to the higher amount once our last loan was repaid.
4. Have a system. We have a bank transfer set up so that our want money gets deposited into both of our individual checking accounts on the day my husband gets paid. I also have an auto-transfer set up on the following day to funnel a small slice of my fun money toward saving up for travel.
5. Plan your purchases. At the beginning of each month, I usually sit down and make a list of all the things I’ve been wanting. That could be anything from fancy chocolate, to a new bike, to bully sticks for my dog. Once I’ve got my list of wants, I rank them in order of what I want the most and jot down the cost of each item. I make a plan to purchase my top-ranked items that month, while leaving a little extra for small impulse purchases or grabbing a cup of coffee out. I’ve found that I enjoy my want money much more when I plan rather than just buying something whenever the urge hits until my money is gone.
6. Shop around. With want money, it can be tempting to just buy on a whim because you do have the freedom to spend it however you want. But if you compare prices as you would with any other purchase, you can stretch your fun money further. For example, when personal finance blogger Crystal Stemberger from Budgeting in the Fun Stuff decided she had to have two weird garden gnomes, she checked prices and waited until she found a great deal. She recommends “holding off on splurges” until the price is right and writes that she enjoys her lawn ornaments even more because she got such a good deal.
And finally: Don’t judge yourself or your significant other on want-money purchases. Mad money is all about letting loose and having fun.