How to Save Money: By Budgeting in Spending Cash

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My Spending Money

I hope I haven’t overstated the fact that budgets are awesome tools to help you get your money on track. And they are not as restrictive as people think they are.

On the contrary, I’ve had much more freedom with my spending since I have been on a budget, and have still saved more money than I did when I was not on a budget. This is why I say all the time that you can SPEND MORE and SAVE MORE AT THE SAME TIME!

How Does Spending = Saving?

When you first get on a budget, most people are gung-ho about finally saving towards their goals. But there is also a fear that their days of fun are over.

No more eating out, no more shopping, no more entertainment, no more indiscriminate spending at the dollar store on water guns. You have to put aside your desire for enjoyment, grit your teeth, and bare the consequence of being on a budget.

But, I started this site in an effort to remove the word budget from your curse word list, and try to re-categorize it as a word that bring excitement and anticipation. And one way that I like to do that is to encourage people to spend more money.

Psychologically, I believe that removing all fun things from your budget will completely crush your motivation and cause you to ditch your budget altogether. Who wants to be on a plan that says “pay all your bills, and NO POPCORN FOR YOU UNTIL YOU’RE OUT OF DEBT!!!!”

Not me.

I would throw that plan away faster than a copy of ‘Star Wars: Episode 1 – with Jar Jar Binks commentary.‘ I’d rather budget in a few dollars for some fun than strip away all semblance of having a life.

Sanity = Savings

I have found that just having a “spending cash” line item in our budget helps keep us sane. We budget in $60 a month that can be spent on whatever catches our eye during that month.

If we did not have this cash, we would end up blowing our budget, not caring, and probably spend hundreds a month on things that our “outside of the budget” because we’re already screwed it up, anyways.

Having a set amount of cash for indiscriminate spending give us the freedom to allow a few “impulse” purchases a month, but keeps it within a range that won’t affect our goals.

And honestly, we say that we can spend it on whatever we want, be we are more discriminating of this cash than any other spending we do. The key is, once it’s gone, it’s gone, and it does not refill until the next month.

How Much Should You Budget?

So, now that you know that spending money wherever you feel like can save you money in the long run, how much should you budget for it? I think there are a few factors that this depends on.

First, if you are spending more than you make currently, this amount should be very small. You need to go through the Complete Guide To Budgeting and get your finances on paper before moving forward with a “spending cash” amount.

Once you have your finances under control, you should look at how much “Miscellaneous” spending you do each month. If any of that spending cannot fit into an existing category, you may need to allow that amount in your “spending cash”.

My wife and I are allotted $60 a month ($40 to her, $20 to me) for spending cash each month. This represents less than 5% of our take home pay.  I suggest sticking to that rule if you are adding spending cash to your budget.

Less than 5% (maybe closer to 3%) of your take home pay dedicated to indiscriminate spending. This will allow you (and your spouse, if married) to have a little fun during the month, and know that you aren’t blowing the budget.

But, there is one important rule to this: YOUR SPENDING CASH MUST BE ACTUAL CASH!!!! This is so that you are literally unable to overspend on this budget item.

I hand my wife $40 at the beginning of each month, and stuff my wallet with $20, and we both know that once that cash is gone, we have no more money to spend on random lawn ornaments or garage sale finds.

I’m not saying we haven’t whipped out that card on occasion to spend on non-budgeted items, but knowing that we have a limit helps us not overspend too much.

What Can You Spend The Money On?

I’m glad you asked. I have put together a specific list that you must adhere to if you want to use spending cash properly:

Seattle Mariners baseball tickets: These are probably worth less than the paper your money is printed one, so have fun watching an opposing team come in and shut them out……again.

YNAB: Shameless plug for a budgeting tool that you NEED to get started on. Seriously, why are you even here if you aren’t on YNAB?!

Journey tickets: It’s Journey. Need I say more?

Anything else your heart desires: This is what spending cash is for. You want to buy 1300 balloons and see if you can float away like the guy in “Up”? Go ahead.

You want to buy 16 tacos at the local taco bell and see how many you can eat in 2 minutes? Done.

Want to buy lottery tickets and start planning how you’re going to buy an island in the Caribbean and have Johnny Depp sail a ship to it every month? Do it!

Your spending cash puts the “get” back into “budgeting”. Spending is a GOOD thing. So give yourself a little “fun money” and add the spending cash line to you budget. You can thank me later 😉

Comment: Do you budget in any fun money? How do you end up spending your cash during the month? If you don’t have any spending cash in the budget, why? If you don’t budget your fun money, do you find yourself spending WAY TOO MUCH “Misc” money during he month? Also, why does the “close door” button on every elevator seem to never work?

Jacob Wade

Jacob Wade

Jacob Wade has been a nationally-recognized personal finance expert for the past decade. He has written professionally for The Balance, The Spruce, LendingTree, Investing Answers, and other widely-followed sites. 
He’s also been a featured expert on CBS News, MSN Money, Forbes, Nasdaq, Yahoo! Finance, Go Banking Rates, and AOL Finance.

In 2018, Jacob quit his job and his family decided to sell everything (including their home) to take off on an adventure. They traveled the country in an RV for nearly 3 years, visiting over 38 states, 20+ national parks and eventually settling in the sunshine state!

37 thoughts on “How to Save Money: By Budgeting in Spending Cash”

  1. I may have missed this, but why does your wife get more money than you do?

    We are all about budgeting and have “blow money” or “fun money” in our budget. Right now we each get $60/month in the category.

    It allows us to buy whatever we want and it gives us the freedom to say “YES” to some things while allowing us to make progress on our debts. I love the blessing a budget has been on our lives.

    • Haha, I knew someone would catch that. I don’t need much spending cash, because I get free lunch at work, and just don’t really have anything to buy. My wife uses hers to buy our son things at garage sales and such, and her having $40 allows her to buy him some things and her some things throughout the month.

  2. “On the contrary, I’ve had much more freedom with my spending since I have been on a budget, and have still saved more money than I did when I was not on a budget.” — Great point Jake. I think people who resist budgeting are only thinking about what they perceive as the tedium of tracking spending, etc. and not the benefits! I think having a budget makes it far more likely to reach one’s goals, and gives one the context needed to make smart money decisions. “Can I afford this?” I wouldn’t have any idea how to answer this fundamental question unless I had a budget with my goals built into it.

  3. I can’t imagine a budget without fun money! I budget in about $160/month. I dont’ use budgets restrictively but instead I use them just as a spending guide, so I may go over or stay under that amount, but that’s what I aim for.

    • Yes, budgets are not restrictive, but they enable conscious spending. You actually know where your cash is going, and if you don’t like it, you can re-direct it. It’s like financial bumper lanes 🙂

  4. Hold up there, no popcorn? That’s horrible! But yes, fun money is really important. It’s how I was able to get my fiance to start budgeting again. The first time was bad as we had no fun money, no date money, no nothing. After a few months, we cracked and overspent again. It’s a lot more easier to stick to a budget with the fun money. We do $50 every two weeks for each of us.

  5. This kind of fun money limitation is really the big reason why I haven’t got into budgeting yet. I’m too worried about having to limit myself when opportunities arise. So I’ve just been trying to limit all of my spending as much as possible. Ultimately I want to keep myself happy though. If something comes up and I want to blow some money, I do so. Obviously this isn’t the best way to limit spending, but I think everyone’s gotta find the strategy that works best for them.

    • I think the point is to have a strategy in the first place (which it sounds like you do). Budgets can work for most people because they enable you to direct your money where you want. I would argue that NOT having a budget is like leaving a leaky faucet unrepaired in your home. Sure, it’s just a few extra drops down the drain, but you are ultimately wasting a resource that could be used better elsewhere. I’d invite you to give Mint.com a shot, just for the fact that it’s almost no work at all, and lays out everything for you :). I think you’d enjoy having a quick snapshot of your finances, just to see where it’s all going.

  6. When we first started budgeting, we didn’t budget in any fun mony at all. It certainly wasn’t fun having no funds for entertainment. However, as our incomes have increased and our expenses have decreased, we have added fun money into our budget!

    • Nice. No fun money doesn’t always mean no fun, but it adds a layer of stress everytime you purchase something outside your budget. And instead of having a bloated “Misc” category, might as well allocate yourself some fun cash to blow on anything, guilt-free!

  7. Journey tickets–YES! I agree with Jeremy just because I think I’d spend it even if I didn’t have anything I needed to buy. It would literally burn a hole in my pocket! I’m envious of those people, like you, that have restraint. :p

    • The awesome thing is, the restraint is already built in, so you don’t have to have any. As long as you use cash, you can spoend it all in one sitting at the gumball machine, and you don’t need to feel guilty about it. That’s part of the freedom of having a budget provides. When you spend money, there is no guilt, because you’ve already accounted for it. 🙂

  8. We don’t use cash often as we like to get points on our credit cards but for most cash is the way to go when budgeting. It really depends on spending habits and current debt level.
    As for fun money, I get $15 allowance every month and that works out fine for me. If I want toys that typically would be tools that comes out of another category. If we want to go on a date we save up our entertainment budget and go. We balance and budget and simply could never look back. Best thing we’ve ever done. The best part is spending the money you know you can spend in each category of the budget!

    • I’ve found that we tend to not keep track as well of spending cash if we use our cards. And since it’s a “spend on anything you want” category, I build in a natural defense to overspending by just pulling it out as cash. We have a date budget as well, and don’t use our spending cash on dates, unless we want to buy the other a gift or something.

  9. My own island AND johnny depp? Yes! 🙂 Ryan and I do $10 a week for each of us and it works out great. I think we enjoy the idea of an allowance to spend on what we want 🙂

    • It’s true. If you think you won’t spend a penny outside your budget and don’t have spending cash built in, you are lying to yourself or just misguided. This is how most budgets fail, because they are too restrictive.

  10. We didn’t start doing “fun money” until 2.5 years into our marriage but I’m so glad we started. Now he doesn’t get annoyed when I come home with nail polish and Starbucks and I don’t care if he buys computer toys. We use cash too, but that can get frustrating when we want to use our fun money for online purchases (which happens often when I buy kindle books). How do you deal with this?

    • 2.5 years without fun!!!??? Haha, J/k. Glad to hear that you’ve got it budgeted in now 🙂

      We do something called “spending cash refund”. When Mrs. iHB finds an awesome deal on Amazon or some other site, she will refund that amount for me to deposit back into our checking account. That way we don’t overspend on “Misc’ items. We also do “spending cash advances”, but I don’t recommend those….LoL!

  11. We budget in spending cash for certain items such as entertainment and dining out. I also put a buffer in our bi-weekly budget so that we can spend on other items that are unplanned. I agree with you 100% that you cant budget fun out otherwise it would not last.

    • Nice! I love that you budget for non-planned items as well. I think that’s another huge problem that causes us to get off track. I wrote about those in my “Savings Buckets” post under the Budgeting tab.

  12. I enjoyed reading the post. I still find it so funny that although the ways to save money are pretty easy but implementing them is just so difficult.Especially, since we as humans want more and more things to improve our lifestyle.


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