Our allowances cover what?!
Even though we have found our FIRE number and our FFLC date worked out, and we track our spending fairly closely, we still allow ourselves some freedom with money. Some call it “mad money”, “rainy day fund”, “allowance”, or whatever the term; it’s essentially money we can spend and don’t have to be accountable to the other person for.
In the SSC household, we use the allowance system. Each month we each get a set amount and can use it however we want. This was originally meant to be for purchases that would only benefit one of us, or for extravagant things that the other may not agree with. Using our allowance funds circumvents those “why did you buy this?” arguments, and makes it easier to stay on budget for FIRE, since the allowances are a category that is already built into our FIRE budget. It also allows us a buffer with our FIRE calculations, since it is a cost we can immediately cut out if needed. It wasn’t always like this though, as our allowances and what they cover have evolved quite dramatically over the past 7 years.
In the beginning our allowances were less, and were intended to cover things that would only benefit one of us. For instance, beer brewing supplies, video games, and fishing stuff for Mr. SSC. And then for Mrs. SSC, well, she would let hers grow and then invest it… Seriously. Then Mrs. SSC started shopping for work clothes, and shoes, and purses more often, and more often. It got to the point that she started feeling bad about the amount that was coming out of the household budget that she decided we should put clothes into the “allowance” category. I rarely bought new clothes, but if it was a little more $$ to spend each month, then sure, I’ll vote for that! Add one more thing to the allowance list.
After a year or so, Mrs. SSC decided we were going out to eat for lunch too often. Specifically, I was going out to eat too often. Usually, we would bring our lunches and eat out at the pavilion at our work campus, but with my new team and assignment, I had started going out once a week, sometimes twice a week! Gah!!! We were also eating out at restaurants at night a bit more during this time period, so after some back and forth discussion, restaurants were put into the “allowance” category. I of course argued for more money, because, well I always argued for more money if another item was put onto the allowance list.
Although looking back I realized I could have had double the allowance and would have still spent it all because my spending habits were pretty poor. Another item that got put into the “allowance” category was gifts. Birthday presents, and Christmas especially. I resisted this one pretty hard, but lost. Mostly, it’s because Mrs. SSC has a birthday close to Christmas so for most years initially, I was in debt to the SSC bank come January, and sometimes thru February. I told you, my spending habits suck.
I kept arguing that the allowances were getting out of hand because we were having to buy “everything” from our allowances. Not really, but it felt like that to me. Plus, just using the term “allowance” made me feel like a little kid whose Mommy watches over his money for him and doles out what she thinks is “appropriate”. That attitude didn’t help my thoughts that our allowances were a good idea. When I would mention them to people, the reactions were one of two: 1. That’s a great idea, we should do that in our relationship! 2. You get what?! An allowance?! What are you, 12?
Yeah, that did wonders to reinforce my negative attitude towards allowances. However, I’ve come to realize though that they are great on many levels.
First: Even though we track everything, I don’t feel hamstrung by our “frugality” and I feel like I have the freedom to buy frivolous things if I want. I can also go out to eat if I want, or take Mrs. SSC out to lunch/dinner. It works great, and avoids those arguments where one party tries to justify buying something ridiculous. Imagine yourself trying to justifying to your significant other, why a $2000 banjo is a good purchase for “the household”. That took a LOT of saving, but zero arguing.
Second: It now makes me question a lot of purchases prior to buying them. Instead of buying something just because I’m “bored”, I want some kind of return on my money. For instance, I just replaced my bike. Prior to doing that, I researched bikes online, went to a couple of stores for test rides and thought about it for a few weeks before I decided on which bike to get. I love my new bike and since we go on bike rides 3-5 times a week, it’s worth it to me to have a comfy, nice bike. I haven’t even looked at banjo’s lately or other music instruments because I just don’t feel the return on investment will be there, and I won’t get a new banjo before selling one.
Third: We have an extra buffer in our FIRE budget calculations. Sure, maybe this is a stretch, but when we quit working if things go south and our dividends aren’t doing well, or stocks have dropped, this is a “bill” that we can immediately eliminate. I mean, it’s more of a book-keeping thing, but it’s money accounted in our budget that is available for us to use, so it would be easy to cut out if it needed to go to something else for a bit.
For us, they work well and have for about 6 years now. It’s also something that we plan on keeping into our “post-work” life. Even though the “allowance” seems to have become a nebulous “everything comes from allowances” budgeting category, it is still easy to build up a surplus. That being said, due to some unforeseen purchases that came up, I admit, I think I’m currently at $0 or maybe even negative. Ooops…
In general though, I’m a fan of some sort of system like this. I’ve seen other bloggers that have this system, The Maroon’s for instance, use a similar allowance type of fund. I think it’s a nice way to not feel so tied down to always being frugal or feeling like you can’t spend money. I can spend it, I just have to save. That makes me buy less, scrutinize my purchases more, and ultimately be more frugal than if we didn’t have this system in place.
What about your family? Do you have a similar discretionary funds system?
Would referring to it as “allowance” make you feel like a kid again too?
Courtney
April 29, 2015We do this too and like it so far. We call ours fun money! The big thing for us is that normal fun money does not roll month to month. So if we don’t end up spending it all the difference goes into savings.
For big purchases we create separate line items that do roll month to month. For instance I’ve been saving $50 a month of my fun money for a pair of hiking boots. I have enough in May to finally purchase them!
Steve is into cameras and photography and always has a rolling camera fund where he can put portions of his fun money each month.
Fun money/allowance makes it so we don’t feel guilty buying things too! I’m glad it works so well for you as well!
Mr SSC
April 29, 2015Oh yeah, Fun Money! My parents used that one, so I can’t believe I couldn’t remember it as a phrase.
That’s an interesting take on it though, not rolling it month to month except for big purchases. I hope Mrs. SSC doesn’t read this, otherwise, I’d have some sort of “rolling fund” to not lose the funds each month, lol.
Mrs. Maroon
April 29, 2015Slush funds = happy marriage.
Before we created our slush funds, we debated purchases frequently, and I mean frequently. We weren’t yet into our frugal, FIRE-saving ways yet either. So we used them like crazy. At the time, we found it to be very beneficial to our sanity and marriage.
Now that we have adjusted our outlook on spending and saving, we find the slush funds getting used less. Mostly, we use them for the random eating out of convenience that pops up occasionally. The outlet of guilt-free spending on ‘unnecessary’ items is liberating. I recommend them to everyone!!
Mr SSC
April 29, 2015Those type of debates are what led to us going that route. We’d both had previous co-workers that used them in their relationships, and they seemed to work well, and they work great for us.
Again, try justifying another banjo or guitar or something seemingly as excessive as a “family expense”. 🙂
It cuts out a lot of arguments and still feels freeing even though we are tracking other spending.
Kalie
April 30, 2015We used to budget an allowance but stopped doing a monthly budget. Because we have a lot of things on frugal autopilot we found we didn’t spend less when we did the monthly budget so it seemed like a waste of time. We still track and evaluate as we go, though. So we don’t officially have an allowance but I think there’s an unspoken understanding that carried over that sometimes we are going to buy little things for ourselves, and we talk about bigger things as they come up. We are both naturally more savers than spenders so this works for us but I always tell people to budget allowances to preserve marital harmony!
Mr SSC
May 2, 2015It would have been nice if I’d had the discipline to do that. But, I wouldn’t have gotten the material for all those “bad decisions” posts if I could have kept it reigned in. I was pretty horrible at spending within my means and excellent at justifying why I shouldn’t stay within my means. Man, the money I wasted, but it’s what got me to the person I am today. Now, it’s just a set number that we’re allotted. So Mrs. SSC keeps it in her spreadsheet and it’s like a checkbook ledger. I get my credit card statement, pass it along, she deducts the balance, and life goes on. If there wasn’t already spreadsheet tracking going on though, yeah it could be a lot more unnecessary work if it isn’t an issue.
Abigail @ipickuppennies
April 30, 2015We have allowances, but I think calling it fun/mad money is a good way to avoid the feeling of being a kid. My husband also got more circumspect in his spending once it was a set amount. He tends to stockpile his, only occasionally buying graphic novels or collectibles that interest him. He did invest in a bunch of stuff recently, and he’s slowly paying it back. (They were only going to increase in value, so I okayed a temporary loan.)
And in the meantime, it’s a reminder that he has to be patient if he decides on a big purchase. He’s been annoyed lately when he realizes he can’t just buy a shirt that he likes. We don’t have all clothing fall under allowance. When he needed a difference size of jeans, that came out of general spending. But just a shirt he likes? Yeah, that’s comes out of his own money.
Mr SSC
May 2, 2015Great idea! We’re switching to something besides allowance, but haven’t decided on “my money” (lol), “fun money”, or what yet. I had to take a loan with my banjo purchase as I was still a few hundred short when it became available, but since it was such a great deal and I’d been looking for over a year…. Mrs. SSC floated the loan. 🙂 Around here, clothes are clothes and come from the same fund, to keep it simple. I tried to split hairs too much at the beginning. If I got an inch, I deserved a mile… It’s better now, but yeah in the beginning, it had to have been rough on Mrs. SSC.
Hannah
May 1, 2015Most of our luxury spending is done together, so we don’t specifically do “allowances”. I sometimes wish that we split up our clothing budget into his, hers and baby though; we seem to quibble over that (but mainly because my husband has clothing amnesia and tends to buy the same item 4 or 5 times).
Mrs SSC
May 2, 2015Hmmmm, clothing amnesia. I can understand as I have two of the almost identical shirt. Not 4 or 5 though. You like what you like right? 🙂
It was clothing that ultimately drove us to our allowance type system. Maybe this can be the tipping point/argument to lobby for a fund only clothing comes out of at a reasonable amount you both decide on. Be prepared, because if he’s like me, I always try to get more $$ in the allowance fund if I can…
Our Next Life
May 20, 2015We’ve definitely evolved over time. When we first merged our finances, we felt it was important to have some remaining sense of autonomy, and so we each got a fairly sizable allowance. But after a few years, we both felt we didn’t need that, and we stopped doing them. Of course, that was before we were as careful about spending as we are now, before we were truly on the FI path. Now that our budget is a lot leaner, we’ve been talking about bringing the allowances back, or maybe even just create a “random expenditures” budget that we don’t currently have, even if it’s a joint line item. But your approach sounds like it’s working for you guys, and that’s the important part. The best thing that we’ve learned is that what works best can and likely will change over time, so it’s good to stay flexible. Cheers!