This is Why You Give Every Dollar a Name!
I get a haircut every month, and it costs about $18. I leave a $7 tip to make it an even $25, and this is the amount we budget each month using Every Dollar. On the other hand, my wife tends only to get her hair done once a year. When she wants to add this line item to the budget, that's what we do. One would not be surprised to discover my wife's haircut costs more than $25. When the time has come for a style and highlights, we increase the $25 ordinarily budgeted for me to about $175. When the transactions roll through our checking account, we apply each haircut to the Hair/Cosmetics line item under the "Personal" category on our budget.
I recently discussed this process with my FPU class, and one of our good attendees questioned my logic. "Shouldn't your wife have some money that she can spend without your permission?" It's a great question, and the answer is a resounding "YES!" Every budget ought to have a category called "Fun Money." In this category, you get to purchase items you like without consulting your spouse or accountability partner. My wife and I each have $100 of fun money that we can use to buy things we want or need. For me, it's typically cheap cigars or Nespresso pods.
Since a new hairdo costs more than $100, we budget this amount when the time has come. Every family and budget is different, though, so this rule may not apply to you. If your fun money budget is $300, then it may not be necessary to create a line item for a new hairstyle. This example illustrates the beauty of your budget. It empowers you to choose what's most important, all while permitting you to spend.
So how does one determine how much fun money is reasonable? There is no rule of thumb, but I think it should be no more than 1-2% of your total monthly income. Any more than that, you are likely spending too much (especially if you aren't on Baby Step 3 yet).
My FPU class met on Wednesday night, and we have 20+ people ready to eliminate debt, build wealth and give outrageously. We even had an attendee cut up their credit card! Even though you missed the first session, it's not too late. Consider joining us so you can start to take control of your finances and change your family tree.
For folks who are ready to take their finances more seriously, I continue to offer FREE consultations. If you think I may be the right money coach for you, then sign up for a session! There's no obligation, and I always enjoy meeting new people and hearing their stories.
Until next Sunday,