I can't think of a time when Mr. H and I have had an argument about money since our marriage in 2010. This is because we have strategically crafted the Fun Money system.
Fun Money allows us to enjoy the journey while maintaining our aggressive financial goals. The system we have in place is extremely powerful because it is so simple.
Dave Ramsey's book "The Total Money Makeover" recommends putting cash in envelopes. Once the cash is gone, it's gone. We decided to simplify the process by replacing the cash and envelope system with debit cards. To make it easy and sustainable we took advice from "The Automatic Millionaire" by David Bach and set up automatic monthly deposits. We agreed on the monthly deposit amount and rules. That's it.
What is Fun Money?
Fun money is money for fun. It covers all extra wants, activities, or items that are clearly frivolous.
How Does it Work?
- Mr. H and I have 3 separate debit card accounts. Many credit unions allow you to do this for free without any fees.
- Each month $20 is automatically deposited from our joint checking account into our fun money accounts. We have the three accounts: Mr. H fun, Mrs. H fun, and Joint fun.
- We make a plan for earning extra fun money.
- We carry our fun money debit cards in our wallets and swipe them for all fun money purchases.
- Once the money is gone, it's gone.
Using Fun Money
To make the system successful Mr. H and I agreed upon a few basic rules:
- No questions asked. If I want to spend my money on something, it's my money and I choose -- no questions asked. No need to feel guilty since it's budgeted!
- Joint fun money. We both agree on the purchase together. Joint fun money covers date nights, and anything else we would do together.
- When the money is gone, it's gone. I can save up for a few months for larger purchases.
- Use fun money for fun. If it's extra it needs to come from fun money, not the joint checking account. Stick to your budget. If it's not in your monthly living expense plan it's extra and should be paid for with fun money.
- Decide the amount. Since 2012, we have always used $20 per month for Mr. H, Mrs. H, and Joint Fun ($60/month in total). We feel comfortable with this amount because it is frugal and keeps us on tract to fully contribute to all our retirement accounts.
- Birthday bonus. Any gifts received are directly deposited or added to the fun account. For example, when Mrs. H gets $50 from a friend for her birthday, we deposit $50 into the Mrs. H fun money account.
- 25-25-50. If Mr. H gets a bonus at work or Mrs. H picks up extra money by teaching summer school we often choose to contribute a portion of it to fun. We choose to deposit 25% to Mrs. H, 25% to Mr. H, and 50% to joint fun. This provides us the incentive to supplement our fun money.
- Use it. Perhaps the most important part is to remember that this money is your money to use as you wish. Fun money allows for flexible spending. You are less likely to blow your budget when you don't feel restricted because you have a plan that allows fun spending.
Examples of using Fun Money
Here we will discuss what sorts of purchases do and do not require fun money spending. These parameters will look different for every couple or individual. I'ts important to establish a shared definition of what fun money spending will look like for you from the very beginning. Eliminate and discuss any grey areas. Where grey areas exist, determine if it is a need or a want.
- Not Fun Money
- Gym membership (we believe in being healthy to enjoy retirement)
- Food (as long as it is within the food budget)
- Gifts (we have a separate budget for it)
- Monthly bills to cover regular living expenses
- Fun Money
- Personal trainer for Mrs. H (this is expensive and above the gym membership)
- Going out to eat (any time!) Joint fun money card if we go together. Mrs. H fun money card if she goes alone.
- New purse, Netflix, golf clubs, sunglasses, watch, second pair of hiking shoes, etc... when I already have one that works or if it is unreasonably expensive
- Treating friends to drinks or an activity
- Vacations (Yes, our recent trip to Europe was paid with fun money and credit card points)
- Gas or other travel expenses for vacations or fun trips
- Hammocks and other camping gear
- Sporting events or shows
- Basically any entertainment or excessive spending
Why Use Fun Money Debit Cards?
If you have not converted to online banking or using mobile bank apps, start now. It makes managing money so easy.
- Time. Managing our fun money accounts takes literally 0 to 5 minutes each month. Since our deposits are automatic, we don't have to do anything beside know our current balance.
- Transparency. Trust about finances is essential to any successful relationship. Mr. H and I completely trust each other with money. Part of that trust comes from transparency. We each view our bank accounts an a regular basis and know where our money is going. Having fun money electronic keeps us both honest and accountable for not over spending. We never hide our fun spending.
- Awareness. At any moment I can access my fun money account and see exactly how much I have and how much I have spent. This helps me be aware of my spending and sometimes ask myself, "Hmm... is that $5 Halo Top ice-cream and really worth 25% of my monthly fun money allowance?"
- Transportable. Carrying a debit card is painless. If you need cash, withdraw from your account. Most places accept debit cards so spending is easy.
- Transferable. Mr. H and I love to take advantage of credit card bonus or cash back rewards. When we use our credit card with reward points for fun money purchases, we immediately transfer funds from the fun money checking account to the credit card account.
- Maintainable. We both have accumulated sufficient fun money reserves. Our joint fun money account also has plenty of reserves. As a result, we never feel worried about having enough money. Accumulating that much cash in an envelope is just not practical.