Updated: Nov 14
It’s time to get over the guilt of spending money. That’s right! You can bet your bottom dollar that even if you are paying off debts and don’t have savings you shouldn’t feel an ounce of guilt about having spending money for the month. Having spending money is actually more beneficial to your financial goals than you may appreciate.
In this post, I’ll provide you with some hard truths about what your spending money should consist of, where to keep it, offer three reasons why you should always have spending money no matter what financial goal you are aiming to achieve and finally show you how I used spending money to become debt-free quicker.
What is Spending money for?
‘Spending money’ is also known as ‘pocket money’ or ‘fun pot’ as I prefer to call it. What you call it is beside the point, having one is what matters!
The truth is that whether you have debt or not, you will find yourself spending money on certain things. You buy clothes, you get your hair done, put your face on, go out occasionally and so on.
Some would argue that having spending money is the reason why they are broke, in debt and have no savings. While that may be true, I would argue that it’s not so much about having spending money, it’s assigning a fixed amount of spending money to yourself each month and not going out of that.
Most people have an endless amount of spending money. Everything they see and want is attained with money allocated for bills, debts and saving and therefore these types of people are doing themselves a disservice.
We often forget that while you are improving your personal finance, you still have to live.
Paying off debt, saving for your six months emergency fund, saving for retirement or a deposit for a home takes time. Therefore, having a pot of money to spend on everyday needs will keep you going on your journey to financial success.
How do you know it works?
I believe that one of the reasons many people don’t get out of debt is that they deprive themselves so much that they end up doing more damage to their overall finances.
If you are wondering where I got this theory from, it came from my own personal experience and the results achieved by my clients who are implementing this theory.
You see, I worked for over 12 years, saved nothing and incurred £18, 000 of consumer debts (credit cards, store cards and payday loans), but yet still I would spend endlessly on things I wanted.
Within 3 years of paying myself spending money each month and sticking to it, I have gone to pay off £18,000 of debts and saved up to three months for an emergency fund!
Since 2017, my husband and I have been paying ourselves £150 every month rather than blowing £500-600 each month and getting into more debt, when we didn’t have a set amount for spending.
Listen it’s ok to treat yourself! In fact- I don’t care how much debt you have you need to have spending money or a fun pot. And guess what? That can be £30, £50, or £100 a month. This is money that you pay yourself each month to spend on the things that you need and enjoy for yourself.
To help implement your allotted spending money here are a few best practice tips and reminders:
Can I have spending money while having and paying off debt?
Of course, you can, In fact, by having spending money/fun pot, while paying off debts it stops you incurring more debt.
Here’s how to do it:
Continue to pay the minimum amount on all your debts.
Decide on a sensible and fixed amount to pay yourself as spending money each month.
Throw any extra money you have after paying the minimum and setting aside your fixed spending money towards the lowest amount of debt. Repeat the process until you are completely debt-free
How much spending money per month should I have?
This amount may be low to start off with (for example, £50-£80). However, as you decrease your debt, you can slowly increase your spending money, after all, you are doing the work. Be sure to give yourself a pay rise if your income goes up. Remember the secret here is balance.
If your income goes up by £100 a month, you can have £20 towards your spending money, £20 towards debts, £20 to save and £20 to invest. Nobody says you can’t live life, you just need to do this sensibly!
I have no savings, should I still have spending money?
Once again, what are you waiting for? The need to save money does not override your everyday personal and basic needs to look good, feel good and be good. The key here is to save little but consistently as well as pay yourself spending money each month. When you have more money coming in you can decide to put all towards savings or split and increase your spending allowance to a more desirable amount.
Wouldn’t it make more sense to invest all of my money than spend it?
The short answer is No! Personal finance is not just about investing. Think of investing as a future reward. Whatever, you invest now is for the future. You have to ask yourself how am I taking care of now, how are you living for now and taking care of your needs now. You can still invest a small and consistent amount, while you pay yourself spending money to keep you out of debt, keep you from spending your savings or making poor decisions with your investments.
What I pay myself
My husband and I are completely debt-free as of October 2019. One of the things that helped us is that we have always had a ‘fun pot ‘aka ‘spending money’. When we could only afford to pay just the minimum on debts we paid ourselves £50 a month into our fun pot as spending money.
When things got better after we doubled our income and used the debt snowball method to pay off our debts, we increased our fun pot to £150 each, a month. Even now that we are completely debt-free we continue to pay ourselves £150 a month while we build our savings pot and prepare to buy our first home. During the lockdown, because our income dropped to one we then reduced our spending money again to £50 a month, so as to not diminish our savings completely.
I am hoping that once we have our 6 months emergency fund we will pay ourselves £300 each every month as spending money.
Cons for having spending money
Now, the only low is that you have to be disciplined. Once you have spent that fun pot on clothing, hair, beauty, nights out etc- you can’t take money from anywhere else to use as spending money until your next payday. So, use your spending money wisely.
Whilst discipline may not come naturally to some, the desire to achieve financial success and break out of the debt cycle should be enough motivation to build this muscle. Don’t get me wrong, not every month will be perfect and that’s ok- They key is that you do your best to improve and make progress rather than being in the same situation month after month.
Let’s wrap it up!
So remember, if you take away anything from reading this blog post, it’s that you need to have spending money, no matter where you are on your financial journey. You also have to have a set amount that is realistic and fixed that you never go cover and finally you need to keep this money separate from your bills, and saving goals. They say put of sight is out of mind!
If you have any specific questions about how you can create a fun pot ask me below or send me a DM.