Do you treat yourself? Is there money in the budget for some fun or spontaneity? If not, failure is heading your way fast in the budgeting stakes.

Fun money: aka "spending money", "pocket money" or "me" money is essential for every budget. People who don't budget sometimes spend too much on the "me". But newly converted budgeters go the opposite direction and deprive themselves too much. The happy median is somewhere in between.

Mary Holm: Save now and enjoy later
How much you need in KiwiSaver to be comfortable

Fun money is designed to stop you feeling tortured or restrained by a budget. If month in, month out, you can only spend on essentials sooner or later there will be a blowout or you'll just give up. The fun money system only works, however, if the spending doesn't have to be justified and isn't monitored by anyone.


Withdrawing it in cash on a weekly basis makes sense. That way once it's spent, it's spent. There is less temptation to fool yourself into whipping out the credit card for one last extra treat. The downside of having it in cash is that you might be tempted to finish it off at the end of the pay period for the sake of it.

How much money should be assigned to "fun" is as long as a piece of string.

Some people can afford to spend hundreds a month on unnecessary stuff. Others may have less than a tenner that isn't earmarked for essentials. But everyone needs either something to look forward to or a small amount of money for spontaneous purchases.

Having said that sometimes it's better to plan what you want to spend the money on rather than be spontaneous. That way you get the pleasure of anticipation.

Just how much people's fun money is depends very much on their personal situation. For some people having $2 a day is all they can afford. Others have $100 or $200 a month.

For some people fun money needs to cover things like lunches, which others may see as essentials. It could be for personal care products, haircuts, days out fishing or last minute invites to the movies or a bar. If it covers clothes or grooming, a lawyer working in a flash Auckland office will almost certainly need to spend more than someone working from a home office as I do.

It may be that clothes, grooming, and nights out come under their own category such as "entertainment" or "personal care" rather than "fun". Fun money may just be literally for the spontaneous coffees or ice creams or whatever it is that your partner moralises about. Fun money takes the heat out of that debate.
If you're learning to change your ways then breaking the fun money down more makes sense. Rather than assigning $50, $100 or $200 a month to "fun", break that down into sub categories for specific purposes such as small treats, café visits, lunches, toiletries, restaurant visits, drinking with mates, tennis, or whatever your personal poison is.

With some couples fun money is the things they do separately. Activities done together and things bought for both come out of the general household budget or specific categories such as eating out.

Weekday lunches might fit into the fun money category perfectly with the separate versus joint approach. If one chooses to make lunch and bring it from home, then he/she can use the fun money for something else.

The decision process around what comes under fun money and how much the allocation should be is a very valuable exercise because it forces us to look at how we spend our money, prioritise, and if we're a family or couple, collaborate.

Of course some families have virtually no money to spare for any sort of fun. One woman I spotted discussing this subject on the forums gets $15 a month, which she spends on trips to the café with the knitting group. She has a separate restaurant category in her budget because it highlights exactly what they're spending in an area she and her husband need to cut down on.

If the reality of your budget means that the fun money is quite limited, then it's a good idea to look for little treats in life to replace the big ones is good.

I discovered one of those small luxuries thanks to an article I wrote about Sydney for Chocoholics, that I could thoroughly spoil myself by going to the likes of Devonport Chocolates to buy a single chocolate. That was an eye opener for me, and an awful lot cheaper at $2 a pop than a lot of other treats such as a perfume. I mused at the time that one small luxurious chocolate is a lot better on the wallet and the body than buying a whole bar of Cadbury chocolate.

One interesting approach I've come across is the couple that assigns $50 per month. If there are any windfalls from overtime or other sources during the month, each gets $10 extra, no matter who earned the money. That's a good way of approaching windfalls, spending some frivolously, but saving the majority or using it to pay down debt.

What's more, people's priorities are different. Also on poster "brad" pointed out that much of his entertainment involved playing music with friends, so didn't cost money. Other people like me prefer to spend their money on going to the movies and live shows, but don't necessarily spend the money on eating out that others do.

Some people are just happy to know that there is fun money in the budget and don't actually spend any or all of it.

If there is fun money left over at the end of the week or month there are different ways of handling it. Some people save it. Others sweep it into a "big fun" category. Others roll it into the holiday spending money and yet more zero out any leftover fun money to pay down debt or assign to bills.

Pushpa Wood, director of Massey University's financial education and research centre gives herself $40 a week. She has a real incentive not to spend that fun money. Anything leftover goes in a jar and becomes her spending money for the annual trip home to India. This year there was $600 in that jar of fun money that wasn't spent during the year.

There is of course the 50/30/20 approach to budgeting. That's 50 per cent to your must-haves, 30 per cent Wants, and 20 per cent Savings. Fun money comes out of the 30 per cent wants.

That of course necessitates a deep understanding of what a need and a want is. Many of us use all sorts of ruses to dress up wants as needs and then justify it until the cows come home.

If 30 per cent on wants seems a lot, then do a bit of naval gazing about your mortgage or rent. How much of that rent or mortgage money is spent on the house you need? Or is it the house you want?

Likewise as I've said recently in an article, if your supermarket trolley is full of things such as lemon twist olive oil, gourmet wafers, fresh scallops, pesto and coconut oil, then that those items should be assigned to your entertainment budget or fun money.

Such items are perfectly acceptable wants. They're not needs. It can be a good exercise to split your trolley into absolute needs and nice to haves, and get the bill subtotalled before you put the wants through. That's an eye opener.

Finally, there are some people who don't assign enough money to having fun. If you're living comfortably on the 50/30/20 formula ask yourself if you're treating yourself often enough.