- When making a budget, you have to leave room for spending on fun things.
- Ramit Sethi recommends 20% of your income should be used for guilt-free spending.
- This is an appropriate amount for some people, but not the right choice in all circumstances.
Devoting some money to fun spending is important -- but how much is the right amount?
Almost all of us have a limited amount of money to spend and plenty of things to spend it on. Obviously, it's important to be responsible with your funds because of this. That means doing things like making sure to pay down credit card debt and save for your future.
But, while you definitely want to make smart spending decisions that improve your situation in the long run, you also need to be able to enjoy your money a little. If you try to set up a budget that only covers the essentials and hope to save every other dollar or use it to pay down debt, you are setting yourself up for failure because you're inevitably going to splurge at some point.
Rather than create an unrealistic plan for what you'll do with your hard-earned dollars, you should consider making a conscious plan to spend some of your money on things you enjoy. But how much, exactly? Here's what Ramit Sethi thinks.
Ramit Sethi on fun spending
Ramit Sethi is an author, finance expert, and the creator of the I Will Teach You to be Rich website. On Twitter, Sethi suggested how much of your money you should devote to "splurges."
"I recommend at least 20% of your income goes into guilt-free spending," Sethi said. Sethi's recommendation is part of his "Conscious Spending Plan," which he says you can use to enable you to ensure you are saving and investing enough so you can spend the remainder of your money "guilt-free for whatever you want."
Sethi's plan also advises that you devote about 50% to 60% of take-home income to fixed costs including your housing payments, utilities, insurance, transportation, debt repayment, and groceries. With 20% set aside for fun and 50-60% going to fixed costs, you'd still have ample money left over to save and invest but wouldn't have to live a life of deprivation.
"I feel so sorry for people who hear stuff like 'don’t buy lattes' or 'get lentils instead of meat' and believe money is all about restriction and budgeting," Sethi wrote when introducing his conscious spending plan.
If you follow his advice, you won't have to do that and you'll be able to actually enjoy your money now without sacrificing your future security.
Should you follow Sethi's advice?
Setting aside 20% of your money for guilt-free spending isn't a bad idea but a lot depends on your personal financial situation and your goals.
If you can keep your fixed costs down and have the discipline to still save and invest about 20% of your income, then there's absolutely no reason at all not to splurge with this percentage of your cash. And, in fact, if you'd rather spend less on things like housing to free up more money for guilt-free spending, then there's nothing wrong with that either.
But if your goal is to pay back debt as soon as humanly possible or if you live in a very expensive area and your housing eats up a high percentage of your income and you don't want to move, then you may need to adjust that amount downward.
The important thing is, as Sethi suggests, to make a conscious spending plan that enables you to use your money in a way that best reflects your values and goals. And you don't have to strip all the fun out of your life in order to do that.
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