Should you have ‘fun’ money while paying off debt?

This is a widely debated topic.

‘Fun’ money or ‘splurge’ money as some like to call it, is money you allocate to yourself for spending on what makes you happy. Spending on discretionary items.

It is usually a percentage of your net income (i.e. your take home pay) and generally ranges from 5% to 15% of your income. This means if your take home pay is $800 per week, your fun money would be between $40 to $120.

(Before we dig into this topic, I want to make it abundantly clear that this post is not intended for those in dire straits. I recommend seeking advice from a professional and/or charitable organisation in your local area if you are experiencing financial hardship.)

Your point of view about fun money will be different to the next person. Your perspective will be shaped partly based off your experience growing up and the behaviours you saw throughout your younger years.

I’m sure many parents would see this in other aspects of their life. As the old saying goes, “Monkey see, monkey do”.  It doesn’t matter what we say as much as what we do. Our children are learning through observation and imitation. This is also true for how we behave with money.

What did you learn about fun money growing up?

Fast forward to this point in time, does your behaviour with fun money mimic what you observed as a young child?

Asking ourselves these questions can help us gauge our psychology about money. It’s a start to understanding why we spend the way we do.

I have a strong opinion about fun money.

Many well-known financial experts would disagree with my strong opinion.

That said, the thing with being too restrictive with your money (even if you have debt) is that it is not sustainable for long periods of time.

Spending is a habit.

You can’t break habits overnight. It takes time.

If you try to completely cut out your fun money you will feel a lack of control and may give up your budget altogether.

Let’s imagine you are $10k in debt and your debt payoff journey will take 6 months. If you have a habit of buying a coffee each day, would it be a wise move to cut that out completely for 6 months?

How would that make you feel?

Instead of buying a coffee every day perhaps you budget in a coffee every other day. In this example, rather than spending $35 per week on coffee (7 days x $5 coffee) you spend $20 per week (4 days x $5 coffee). Not only can you enjoy your regular coffee out but you have an extra $15 per week to put towards your debt. Win-win!

Now, every situation is different and every person is unique.

If you have a debt payoff plan which ends in 2 months, you may be willing to scale that coffee back to once or twice per week. The debt payoff date is in sight and buckling down for a short period of time is absolutely doable.

So give yourself just a little bit of freedom throughout your debt payoff journey. It will help you stay on track with your budget and payments.

Your future self will thank you.