Discretionary spending strategy

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Blake7
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Discretionary spending strategy

Post by Blake7 »

DW and I recently decided that although we live well, we want to implement a “fun money” monthly allowance. Just to get this out the way: we have zero debt (inc. paid for home), retirement (pre-tax and Roth IRA) are being maxed, 529 is fully funded, and we have a two-comma portfolio that will provide the retirement we want, and we add to our taxable each month after expenses. We have also taken LTC expenses, retirement medical, and inheritances for our offspring into account. We started with nothing when we married and have always lived frugally. However, we do not want to leave too much money after we’ve gone either, just a decent amount. We generally find it challenging to spend money beyond our current “comfortable“ lifestyle. So we decided we need to force ourselves a bit to enjoy the journey more rather than mostly saving for later. I also researched some other forum threads on this subject.

So, based on this trajectory, we determined we can comfortably spend some extra money from cash flow if we want. The fun money amount is TBD, but will likely be $200-$400/month each. Taxable will still be added to. We came up the following guidelines:

1) Fun money should primarily be for “consumable” products or services. Generally, we don’t want more “stuff” accumulating in our lives.
2) We have determined what consumables/services in our current expenses are included or not included in the fun money category for each of us, so we have a baseline starting point.

What we need to decide:

Other than the monthly fun money amount, should we rollover unused money, and if so, all of part of it? For how many months? My concern with rollover is that we are frugal spenders and will defer or underspend indefinitely. But if don’t rollover, we might be inclined more to spend frivolously if it’s “use it or loose it.” We are not looking to just “piss money away,” just spend some more without guilt.

What is your fun money strategy (or not if you don’t have/want one)? Any suggestions and feedback are appreciated. Thank you for your help with our first-world problem. :happy
Last edited by Blake7 on Wed Sep 16, 2020 1:03 pm, edited 1 time in total.
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lthenderson
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Re: Discretionary spending strategy

Post by lthenderson »

After making sure everything is funded and the bills are paid, whatever is leftover in the checking account is our fun money. No need to budget it.
sailaway
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Re: Discretionary spending strategy

Post by sailaway »

We spend when we want because we know we don't want much. We have actually had conversations about what spending would make us happier and the only answer we came up with was more travel. It is going to be awhile before that happens, but we did each get high quality noise cancelling headphones because our neighborhood got loud during the pandemic.

It can also help if you have one expensive interest. Our boat accounted for more than half our spending the year we did the refit. If this so the case, consider a just do it attitude, rather than trying to save up monthly spending.

Finally, we spend what we spend on groceries. Sure, some of that is rice and beans, but some of it is salmon for DH's lunch salad and lamb chops a couple of times a month.
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Blake7
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Re: Discretionary spending strategy

Post by Blake7 »

lthenderson wrote: Wed Sep 16, 2020 9:38 am After making sure everything is funded and the bills are paid, whatever is leftover in the checking account is our fun money. No need to budget it.
We actually never budgeted. The only reason decided to for the fun money portion is to: 1) “force” ourselves to enjoy money a bit more. Without budgeting for the fun money, we’d probably just revert back to “normal spending”. 2) Keep it equitable. We’ve always had joint accounts and each spent reasonably on personal stuff, without worrying too much about equal spending. We just want to have some “guidelines” to work within for the fun money to avoid potentially creating marital tensions. We plan to splurge the money on things we would’t normally buy, such as an expensive scotch for me, or a massage for the wife, etc. :beer
jsapiandante
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Re: Discretionary spending strategy

Post by jsapiandante »

We are still in the accumulation phase, but I made a projection about how much we need to save per month to meet a modest lifestyle in retirement in 3-5 years. If we saved more, it doesn’t really move the needle much faster for us. What we did is after everything is fully funded and our bills paid for, anything left over is fair game to spend. If there happens to be money left over at the end of each quarter, we’d invest in our taxable.

You guys have already won the game, it’s now more of a mental hurdle to get through after being frugal for so long. You can definitely afford to spend more. Good luck.
perceptionist
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Re: Discretionary spending strategy

Post by perceptionist »

At your stage I would say don't worry about it in that detail. This is where the "life is too short" part of my brain comes to play and balances out the aggressive saving/investing. Set your monthly/yearly budget and enjoy IMO.
bloom2708
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Re: Discretionary spending strategy

Post by bloom2708 »

Dole it out in cash form.

That way you can choose to roll it over or spend it. If you buy something with a CC, deposit some cash back to checking.

If you don't like that idea, how about 2 "free checking" accounts next to your primary checking. Transfer each month. Roll or spend.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
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backofbeyond
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Re: Discretionary spending strategy

Post by backofbeyond »

Similar circumstance as OP. No debt. Ample retirement cashflow and assets set up.

We decided to put aside $25K a year (2018 inflation adjusted) for fun money. The majority of the expenditure is on travel. But we also do a lot of adventures stuff like: amusement parks, jet ski rental, ziplining, snorkeling, parachuting etc. And some $$ on just quality of life upgrades like weekly massages and upgrades to our smart phones (I use my exclusively to take photos during our travel).

Per OP's specific questions, yes, I log each and every fun money transaction and deduct it from that year's allowance. And yes, I do roll it over to the next year (or deduct if I "borrowed it" from the prior year). Like OP, we are pretty frugal, so it's been a challenge to spend it. But after 3 years, we've got the hang of it, usually we go on one major International trip and then two minor trips within North America. This year with COVID, it made it particularly difficult. We are 9 months in and we've only spent 25% of our allowance. On a personal note, our trips at this point in our life's (in our early 50s) has centered around more physically challenging vacations while we are still healthy and also visiting areas rich in wildlife. I'm a firm believer (after working in the National Science Foundation and Forest Service) that climate change is real and that by 2050 we will have lost a significant amount of our species forever. :(

If you find yourself not spending it just on yourselves, you can always invite a friend or relative along on these trips that normally couldn't afford it. To you another trip to Thailand may be fun, but to someone that normally can't afford it, it's a once in a life time experience. We have done this with various nieces, nephews and sisters and have been reward a thousand times over with watching them literally have the time of their lives.
The question isn't at what age I want to retire, it is at what income. - George Foreman
flyingaway
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Re: Discretionary spending strategy

Post by flyingaway »

I don't know if you are still working.

We are financially independent, but are not retired. So we do spend some fun money on playing. I don't want to mention it specifically here. But it actually makes us feel more comfortable to work One More Year.
123
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Re: Discretionary spending strategy

Post by 123 »

I would include restaurant meals and alcohol purchases (either for home consumption or consumption outside the home) as "fun money" purchases. If you don't you just fool yourself that those are all "food", it is primarily relaxation and entertainment.

Depending on your mileage I would also argue that purchasing a replacement vehicle when the existing vehicle is less than 5 - 7 years old is likely a "fun money" purchase.

Ditto subscriptions to cable and streaming services beyond internet only service.

There are lots of things in life that we fool ourselves into thinking are essential whereas they are totally discretionary. You can live very well without them.
The closest helping hand is at the end of your own arm.
nguy44
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Re: Discretionary spending strategy

Post by nguy44 »

When we were in accumulation stage we budgeted separate "fun money" accounts for each of us. This supported our different interests. The only "rule" was no questioning what the other chose to spend the fun money on. We each spent on all kinds of things or situations we desired - anything from "treat yourself" items to helping out friends/family. If we did not choose to spend let it roll to the next month and accumulate. Sometimes the accumulation was intentional to by a costly object.

My suggestion from our experience is do not overthink it. The "fun" is in using it for whatever you want.

Now that we are retired, we no longer budget at all. We are fortunate to have enough to have a very comfortable retirement lifestyle where our spending target covers a lot of "fun money" items.
lazynovice
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Re: Discretionary spending strategy

Post by lazynovice »

Our budget has three categories+ taxes, spending and investing. We started viewing it that way once we had retirement accounts maxed out, college saved for, and no mortgage.

We give ourselves a raise every year for spending, although a few years, I have skipped that. This year I cut it back when I could see we were not going to be traveling or dining out as much. Taxes are what they are. The difference goes to taxable. I can estimate it at the beginning of the year without a lot of changes. The checking account builds up higher in some months and drops in others but we generally land at the same balance at year end every year.

So we are rolling it on a monthly basis to answer your question. And we don’t have a fun money strategy. We just have spending.

One compromise between pissing it away and being too frugal might be to donate anything extra you have in December to charity or to gift it to someone you know who needs it and for whom it would make a difference in their lives.
Old Sage(brush)
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Re: Discretionary spending strategy

Post by Old Sage(brush) »

Congratulations you’ve done well! I don’t believe you mentioned philanthropy in your high level summary of finances. You may get enjoyment out of finding some nonprofit to support with discretionary spending, or even above the level you currently contribute. For example one of the responses mentioned trips to wilderness areas and climate change. Perhaps consider doing that while also supporting an organization that works in preservation or combatting climate change. It could solve your “problem” and be a win win.
Mr. Rumples
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Re: Discretionary spending strategy

Post by Mr. Rumples »

My "fun money" rolls over. I keep a record of it. I am spending it now on landscaping. A project now which I can mostly handle on my own, though I am paying a kid to help with digging holes for shrubs and then a large project in March when the guy who helps me around the house sometimes is free. These days there isn't a lot to spend it on other than landscaping and books.
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JoeRetire
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Re: Discretionary spending strategy

Post by JoeRetire »

Blake7 wrote: Wed Sep 16, 2020 9:28 amWhat is your fun money strategy (or not if you don’t have/want one)?
We don't have a "strategy". We spend what we want, on what we want, when we want to.

During our accumulation phase, we were always careful and always planning. Now in retirement, we don't have to worry. Our needs are covered for the rest of our lives. We can afford to spend more. Usually that means gifts for our children and grandchildren.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
cncm
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Re: Discretionary spending strategy

Post by cncm »

We started loosening the purse strings significantly after hitting our first $1M in investments/savings...with the goal of "enjoying life now" instead of waiting until retirement. We looked at what would increase our standard of living/enjoyment the most and came away with these splurges:

1) Housing/commute time: we upgraded to a bigger place that was also closer to work, cutting down daily commute times significantly. We also spent more on good quality furniture (no more IKEA) and interior decoration to make the place more aesthetically pleasing/"homey". Zero regrets there, especially in recent months where we've been spending basically all our time at home.

2) Dining out: we enjoy eating out a lot more than cooking at home, so started dining out more frequently (4-5x a week), trying new restaurants/cuisines, exploring different ethnic neighborhoods, etc.

3) Travel: we've always traveled extensively but usually stayed in budget accommodation. We started upgrading our lodging, particularly for trips where we'll be spending a lot of time at the hotel (e.g. beach vacations)...in those cases we started splurging on 5-star resorts and have found them generally worth the money in terms of the amenities you get. We also started paying extra for direct flights instead of just the cheapest flight available.

4) Clothing: less applicable for my husband who has zero interest in fashion, but I started upgrading my wardrobe, buying less fast fashion and more high-quality pieces...especially pieces that I get a lot of wear out of (e.g. winter coats, boots, purses, etc).

5) Family: both my parents come from very frugal backgrounds and have worked hard all their lives so me and my siblings can have more opportunities. I've really enjoyed spending more money on them, buying them things they would never buy themselves. I've also helped them out financially with mortgages/down payments/etc. Obviously this depends on your family dynamic but I can say in my case, it's been 100% the best money spent.
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Blake7
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Re: Discretionary spending strategy

Post by Blake7 »

Thanks everyone. I found the range of responses interesting. I figured I’d address some of the responses in a single post:

1) Several people said they don’t worry about tracking discretionary spending. I get that it’s one less thing to do, especially for people who are perhaps very well off and their discretionary spending doesn’t move the needle much for them. This could work for us at a later time if something changes the equation drastically (e.g., significant inheritances).

2) There is some variability regarding what’s considered discretionary spending. For the monthly allowance, we are not counting vacations, car replacements, or family meals out, etc. Those come out of the general budget as they are either necessities of involve multiple family members. The allowance in question for us is for personal use. So taking a friend out to lunch, buying expensive alcohol that the other spouse doesn’t drink, etc.

3) I am considering another option: borrow forward (instead of rollover). So no rollover, but we can borrow into to the next month for larger, one-off expenses. That keeps us incentivized to spend our allowance, but allows flexibility to spend more occasionally if needed, but at the temporary expense of the following month’s allowance.

4) Philanthropy: we expect to do some that at some point. It will come out of the general budget.

5) This might seem to be overthinking for some, but it’s really just on the front end. Once initiated, it will require virtually no effort to track.

:sharebeer
Admiral
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Re: Discretionary spending strategy

Post by Admiral »

If you have over a million dollars and are still saving that much each, then I would posit that all this "fun money tracking" is needless and actually detracts from the "fun" part of it. Part of it being enjoyable is not having to think about it.

Once all the fun spending--and I find it interesting that you don't include vacations and eating out in this category, which clearly falls under discretionary for most BHs--starts eating into your savings rate, that's the time to hit the spreadsheet and juggle the numbers.

Until then, enjoy your good fortune and your life and skip the tracking.
vtjon02
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Re: Discretionary spending strategy

Post by vtjon02 »

We each get a fun money allocation each month. It has grown a lot over the years. An amount is transferred into individual accounts. There is no accountability on this money but if we want to exchange gifts it comes out of this. It also makes gifting more fun because it can truly be a surprise.

I use mine to buy gifts, to play cards and to upgrade myself to first class on business trips when I can't charge it back. I used to wonder what my wife did with hers beyond gifts. She'd occasionally have a new purse or pair of shoes that didn't come out of our joint frugal spending. But when doing the taxes this year I learned that she gave all of her accumulated fun funds to our local dog rescue. I married well. :D
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Blake7
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Re: Discretionary spending strategy

Post by Blake7 »

Admiral wrote: Thu Sep 17, 2020 8:53 am Once all the fun spending--and I find it interesting that you don't include vacations and eating out in this category, which clearly falls under discretionary for most BHs--starts eating into your savings rate, that's the time to hit the spreadsheet and juggle the numbers.
We do actually consider vacations and eating out discretionary spending, but as I mentioned in point #2 (and I should have probably made that clearer from the onset), this post is about an additional *personal* amount for each of us to enjoy. Point taken about the need for tracking, but I guess everyone’s situation differs, and I’ve seen too many relationships with tensions regarding spending habits being out of balance. I doubt that would happen with us, or we’d correct it if it did, but I’d rather it remain a non-issue.
Admiral
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Re: Discretionary spending strategy

Post by Admiral »

Blake7 wrote: Thu Sep 17, 2020 9:13 am
Admiral wrote: Thu Sep 17, 2020 8:53 am Once all the fun spending--and I find it interesting that you don't include vacations and eating out in this category, which clearly falls under discretionary for most BHs--starts eating into your savings rate, that's the time to hit the spreadsheet and juggle the numbers.
We do actually consider vacations and eating out discretionary spending, but as I mentioned in point #2 (and I should have probably made that clearer from the onset), this post is about an additional *personal* amount for each of us to enjoy. Point taken about the need for tracking, but I guess everyone’s situation differs, and I’ve seen too many relationships with tensions regarding spending habits being out of balance. I doubt that would happen with us, or we’d correct it if it did, but I’d rather it remain a non-issue.
My spouse and I both know our budget, though we don't budget for each of us to get an "allowance" to buy something needless or frivolous (which of course is in the eye of the beholder). Typically we just buy it, and at the end of the day it all comes out in the wash. We try not to begrudge one another. If it's a large purchase (say four figures) that is something we discuss beforehand. If it's less than that, and it does not impact our ability to save or pay the bills, then... that's what money is for.

I tend to be more like you where I try to track everything. But over 25 years of marriage I've found that, more often than not, she is correct in that, ultimately, it really does not matter if one week or one month we bust the budget. We meet our savings goals and are on track to retire when we want.
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Blake7
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Re: Discretionary spending strategy

Post by Blake7 »

Admiral wrote: Thu Sep 17, 2020 12:15 pm
Blake7 wrote: Thu Sep 17, 2020 9:13 am
Admiral wrote: Thu Sep 17, 2020 8:53 am Once all the fun spending--and I find it interesting that you don't include vacations and eating out in this category, which clearly falls under discretionary for most BHs--starts eating into your savings rate, that's the time to hit the spreadsheet and juggle the numbers.
We do actually consider vacations and eating out discretionary spending, but as I mentioned in point #2 (and I should have probably made that clearer from the onset), this post is about an additional *personal* amount for each of us to enjoy. Point taken about the need for tracking, but I guess everyone’s situation differs, and I’ve seen too many relationships with tensions regarding spending habits being out of balance. I doubt that would happen with us, or we’d correct it if it did, but I’d rather it remain a non-issue.
My spouse and I both know our budget, though we don't budget for each of us to get an "allowance" to buy something needless or frivolous (which of course is in the eye of the beholder). Typically we just buy it, and at the end of the day it all comes out in the wash. We try not to begrudge one another. If it's a large purchase (say four figures) that is something we discuss beforehand. If it's less than that, and it does not impact our ability to save or pay the bills, then... that's what money is for.

I tend to be more like you where I try to track everything. But over 25 years of marriage I've found that, more often than not, she is correct in that, ultimately, it really does not matter if one week or one month we bust the budget. We meet our savings goals and are on track to retire when we want.
Your system sounds quite reasonable. I think what I’ve decided from this entire thread is to establish a reasonable amount for each of us, and call it a day. A bit more less here or there is no big deal. The main objective to is relax our spending a bit and enjoy the fruits of our labor. :happy
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