When my wife and I were in Cuba a handful of years ago (in what now seems like an eternity), we stayed at a little resort. It had great food, a great beach and big on entertainment and activities. And to encourage their guests to be active, for every activity you would participate in they would hand out what they called “funny money”, which were just silly copies of hand-drawn bank notes that you could later use to spend on auction items later that week.

I can’t even remember what items they were auctioning off that day, but this whole concept of ‘funny money’ or ‘fun money’, really hit me this year, as I was starting to miss out on all the little frivolous things we used to spend on, when we were oh-so-young-and-foolish.

Of course, our discretionary spending is a lot different now that we have ‘real’ responsibilities like a child and a mortgage and have to put food on the table, yada-yada-yada. But that doesn’t mean we have to slave away our days – all work and no fun. I think it’s important for everyone to set aside a little ‘fun money’ in their budget to do some of the ‘little’ things you enjoy. Now when I say little, I actually mean little – think tabloids and candy and wait for it… lattes. Now I know lattes get a really bad rap, but if that’s your thing, $3 once and a while for a cup of coffee is really not going to set you back a whole lot.

But this isn’t just about lattes. You know, we’ve been budgeting for years now, but you always look for and learn of new and hopefully better ways to manage your own finances. Budgets are always evolving and so should we.

Budgeting for the little things

While debt elimination and budgeting is all very important, I think it’s also just as important to budget for the fun stuff. Because unless you make it fun, chances are you’re more likely to jump ship and go back to your old spending ways. There’s a term for this – ‘debt fatigue’. When you think of food diets, there’s a lot of similarities. Most of which, expect you to cut out entire food groups, like carbs or fat and inevitably cut out the foods that you love. So you diet and lose a whole bunch of weight while on it, but then because you’re not eating the foods that you like, you revert to your old habits. So insert a little fun. Set aside even a small amount to reward yourself every so often and don’t budget yourself into a corner.

For years, whenever we wanted to buy something little that we really wanted, we’d try fitting it into other categories like entertainment, or the holy grail of sometimes useless budget categories – Miscellaneous. Now, there’s not anything wrong with this, per se. As long as at the end of the day, you’re pulling in more money than you spend, and you’re saving for your goals, et cetera, et cetera. Except, what ended up happening, at least in our case, is that a lot of the fun money got funnelled into these large categories and then just as quickly, the money magically disappeared. The problem was that most of those categories, were for the most part, already spoken for, or we find other things to use it up on and it ends up awash. And we never see that fun money again. And that’s no fun.

Cash it out! Have fun!

So now we not only have the ‘fun money’ properly set aside, but we’ve started cashing it out. Problem solved! We now have set aside $100 a month or $50 each that we now take out from our bank account at the beginning of each month. Cashing it out allows us to stick to that dollar amount, so we’re not inclined to spend more than we have in our pockets. And if we don’t use it up, we simply carry it over to the next month, until we have enough money to buy that ‘little’ thing we wanted.

Now how much you decide to set aside or what you decide to spend it on is entirely up to you. But typically this doesn’t fall under dining out, or vacations or any large purchases, because all those expenses should be already accounted for in your budget. This is for the small and frivolous. So you can use this to go out and have a beer with the guys/gals, take a spa day, reclaim past and inexpensive hobbies, grab for the morning paper or that fresh cup of Joe.

Me? I’m still trying to get used to this whole concept. After years of frugality, I’m finding it tough to even spend that $50! But since I started that this year, lets see… I’ve used it to buy a home reno magazine, guitar strings, computer parts, a CD and a host of other items I probably already consumed (none of which include a latte).

How about yourselves? Do you have any ‘fun money’ set aside? What do you use yours for?

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