How To Create a ‘Splurge’ Fund To Avoid Debt and Regret
Written by
Brooke Barley
Edited by
Amber Barkley
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Many people think a budget means there is no room for fun purchases, but that’s not the case. There are ways to spend money on enjoyable experiences without going overboard.
Here’s how to budget the smart way while still making sure to leave room for splurges, according to financial experts.
Track Spending
The first step to creating a “splurge” fund is to know exactly where your money is going.
Julie Guntrip, the head of financial wellness at Jenius Bank, suggested setting up a budget with three different priorities: needs, wants — aka the splurge fund — and savings. Once these are tracked for a month, Guntrip explained, patterns will emerge and will help dictate how much there is to spend on wants.
“This practice could provide an opportunity to spot patterns in discretionary spending and rethink them. This information could motivate you to adjust your behavior and be more intentional in your discretionary purchases so that you skip the meaningless extras and focus your resources on the things that bring you the most joy,” she said. Financial wellness is about balance — being able to indulge in the moment and still work toward growing your wealth and securing your future.”
Define Needs and Wants
In order to track what’s absolutely necessary and what’s discretionary, Guntrip suggested labeling each expenditure.
“Some expenses are non-negotiable, like your housing, utilities or food. Those are obviously in the needs category. Ideally, paying down high-interest debt would also be high on your priority list,” she explained.
“Routine discretionary spending comes in many shapes and sizes. It could be a gym membership, a streaming service or even the daily coffee on the way to work. Tracking your expenses each month and assigning them to a category could help you understand how much of your money goes toward needs and how much you actually spend on wants.”
Save for a Rainy Day … and for Unexpected Fun
When setting money aside in savings, Guntrip explained that it’s important to earmark some of it for spontaneity. “If you have money allocated for unexpected fun, just like for unexpected emergencies with an emergency fund, you may be able to avoid debt spending for this type of discretionary spending.”
Opt for a High-Yield Savings Account
To get started, set up two savings accounts: one for emergencies and one for the splurge account.
To get the most bang for your buck, Guntrip suggested getting high-yield savings accounts to earn additional interest. “By setting this money aside upfront, you’ll likely enjoy the occasional splurge even more, knowing you’re not derailing your other financial goals.”
Reevaluate as Needed
Guntrip explained that the splurge account can morph over time and become a place to save for large purchases. “You’ll want to evaluate the money you set aside for splurges relative to other savings goals, like planning for a house down payment or retirement.”
That’s the great thing about a splurge account — it can be used for whatever is needed and considered discretionary. “A splurge is whatever you define it to be!” Guntrip said.
More From GOBankingRates
