Budgeting for fun sounds like what personal finance nerds do on Friday night. But it's actually the cool thing to do. With a little attention to your spending and saving plan, you can have all the fun you want—and avoid a debt hangover. #Budgetsarecool
Step one: Figure out how much you're already spending on fun—including things like travel, entertainment, and restaurants.
How much do you spend on fun?
Tracking your spending can be an eye-opener. In the olden days, you had to track your spending with a pen and paper, and note every item you spent money on over a period of time—like two weeks or a month. Technology pretty much does all of this for you now—unless you're a cash-only type, in which case you’re still stuck doing manual tracking.
Keeping a close eye on your monthly spending is a good habit to get into, and technology can make it really easy. If you use a debit or credit card for purchases, you should be able to download or view your spending history and examine your spending categories. Or, you can use a budgeting app to get a handle on where you spend and how much. Do you spend more or less on fun than people like you? Spending on fun as a percentage of income goes down as income goes up.
|Annual income||Total Fun Spending|
|From $50,000 to $80,000||8%|
|From $80,001 to $120,000||7%|
|From $120,001 to $200,000||7%|
|More than $200,000||5%|
Source: Fidelity analysis of 2013 and 2014 Consumer Expenditure Survey data from the Bureau of Labor Statistics.
Other fun facts
- Single people spend slightly more than married people on fun: 8% versus 7%.*
- Single men spend slightly more than single women on fun: 8% versus 7%.*
Check out "Funding the fun" to find out how your spending measures up.
How much do you want to spend on fun?
Step two is deciding if your spending is on target. Once you know how much you're already spending in various categories like restaurants or movies, evaluate your fun spending in the context of your overall spending and saving plan. Knowing how your spending compares with that of people like you can show if you're spending too much. You may find that you're happy with your current level of spending or you may find that you’re spending more than you thought. The goal is just to understand where your money goes so you can be in control.
Consider Fidelity's spending and saving rules of thumb to find out if you're on track:
- No more than 50% of your take-home income should go to essential expenses. That includes housing, food, health care, transportation, and debt payments.
- Save 15% of your pretax income for the future—that includes any employer match.
- Save 5% of your after-tax income in an emergency fund. Once you've amassed a comfortable cushion equaling three to six months' worth of expenses, keep saving 5% of your income for unexpected expenses.
So what's left? This is the money you can save for big-ticket items like a new car or a down payment on a house. You can also use some of this money to spend on—or save for—fun and excitement.
Make saving automatic
In order to save for any goal—whether it's retirement, vacation, or amazing seats at a concert or Broadway show—making your savings automatic can help you get there. It makes good sense to contribute to your 401(k) or other workplace savings account—or an IRA if you don't have a plan at work. Many people find it easy to save in their workplace plan because it works on the "out of sight, out of mind" premise—your contribution is made before you get your hands on the money.
Fidelity believes investors should consider saving at least 15% of their pretax income, which includes employer contributions for the future. But if 15% still seems a bit out of reach, saving enough to capture the entire match from your employer is a great place to start.
To start saving for fun, think about automatic deposit or scheduling regular transfers from your checking account to your savings account. For instance, if you have your paycheck deposited to your checking account, you can schedule a transfer to your savings account on the same day you get paid. Before you can think of spending it, the cash is whisked into savings. When you're ready to have fun, you have money waiting for you.
All it takes is a little planning ahead—and what's more fun than that?
Take the next step
Now that you have some general guidelines for setting up a budget, think about your typical week and use our "Funding the fun" tool to see how your spending compares to others like you.