Fun money is a personal budgeting term. It typically refers to a category of funds that people designate, when calculating all of their expenses, as a certain percentage of money for personal use. As the term implies, fun money is generally used for entertainment or anything else that the person enjoys, without having to account for the purchase or feel guilty about spending it. Financial experts often recommend that even someone on a tight budget might benefit from regularly setting aside a small amount of money for personal enjoyment.
People often set up household budgets to provide an overview of their financial situation, or to create a long-term savings plan. A simple budget typically consists of basic data about income and expenses. Most people have recurring expenses, and it is a common practice to develop a monthly budget to track regular income and bills. Examples of income can include wages or salary, as well as any other money earned. Expenses might consist of household necessities such as food, housing payments, and utilities. Medical expenses, educational costs, transportation, and insurance are some additional items that might be included in a personal budget.
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There are several different ways for someone to distribute money among his or her budget categories. For example, according to one popular budgeting plan, 60% of income should go toward fixed expenses. Of the remaining amount, some experts recommend that 10% be designated as fun money. It can be spent on anything the person wants, and no justification is needed. Typical expenditures might include dining out, music, movies, books, and other forms of entertainment.
Once someone has determined how much to reserve as fun money, he or she can decide how it will be set aside. Some financial professionals advocate an envelope budgeting system, in which the actual cash from each spending category is placed in its own envelope. Using this method, the money can be spent in whatever way the individual would like. Once it is gone, however, the person usually must stop spending, or else borrow funds from another category.
In general, cutting back on spending is advisable for anyone who wants to have more money in his or her savings. Regularly setting aside some money for entertainment can help people stick to their budgets, because they might be less tempted to spend money that they do not have. Even though fun money is usually meant for splurges, there are ways that people can maximize their spending possibilities. For instance, someone might choose to rent movies or see less expensive matinees in a theater, rather than paying full price for a movie ticket.