Are You Spending Too Much Money on Entertainment?

Dec 29, 2016 | Be First to Comment!

entertainment

When it comes to personal finance, it’s not all about budgeting and saving. It’s about spending on things that add to your life, too. This is where “entertainment” comes in.

The “entertainment” category of your budget can be tough to determine, though — especially when it’s hard to understand just what classifies as entertainment. What is considered entertainment and what is not? How much should you really be spending on fun each month anyway? Read on to learn how much you can actually afford to spend on entertainment — and if you are spending too much.

Start with your needs

To figure out how much you can reasonably afford to spend on entertainment, first work backwards. Take our your recent pay stubs and figure out your after-tax salary, or what money you’re really bringing home for the month.

Then, list out your monthly, recurring expenses such as:

  • Rent/mortgage
  • Insurance
  • Gas
  • Food
  • Utilities

For the first part of the exercise, only focus on your “needs” — things that you actually need to survive each day. Once you’ve listed all the expenses that are classified as needs, compare your after-tax salary, with the amount you need each month to survive.

How much do you have left? Let’s say after taxes, you bring in $3,000 each month and your “needs” are:

  • Rent/mortgage: $1200
  • Insurance: $300
  • Gas: $100
  • Food: $250
  • Utilities: $150

Total: $2,000

If your after-tax salary is $3,000 and your “needs” expenses are $2,000, you have $1,000 left over. Now, that doesn’t mean that should be your entertainment budget, because the second tier you need to focus on after your needs, is your financial security.

In other words, you want to build up your emergency fund, pay off debt and save for retirement, too. These categories can help you prepare for your future and strive toward financial balance.

To start, commit to saving ten percent of your after-tax salary (if you can afford it) for a rainy day. If you can, committing another ten percent of your after-tax salary to retirement can help you significantly. If you have debt, you may want to pay more toward debt, while saving less.

  • 10 percent savings: $300
  • 10 percent for retirement: $300
  • Monthly payment toward debt: $200

Based on $1,000 left over after paying for your needs and paying $800 per month toward saving and paying off debt, you have $200 left. This is where your entertainment budget will come from. Will you need all $200? Maybe. Will you need more? That depends on your hobbies and interests.

Of course, all of this will vary depending on where you live, your family size, income, etc. It’s important to look a the big picture and look at your own unique situation and not compare yourself to others.

How to determine how much you need for entertainment

By its nature, your entertainment fund is “extra” — you surely don’t need it to survive, but it can also make your life whole lot less miserable.

Your entertainment fund should come from the money you have left over after paying your needs and paying yourself first. You may or may not need all of it, but here’s how you can determine what you need for entertainment.

  1. Understand your values. Everyone has different values, especially when it comes to entertainment. I prefer to spend my entertainment funds on arts, culture, and new culinary experiences. Others might think that’s a waste and spend their money elsewhere. What matters is what YOU value and what you want your entertainment funds to go toward.

  1. Look at your hobbies and interests. Hobbies and interests may sound similar, but typically hobbies are things that take time, whereas interests are things that you enjoy from time to time. For example, your favorite hobby might be photography, whereas your interests include going to museums and concerts. Hobbies can be more expensive because they can require additional expenses to get started and keep going. And that’s okay! It’s important to understand how your hobbies will affect your entertainment budget. If you’re really serious, it may take up the whole budget. If you want more balance, figure out what you need to regularly pursue your hobby, while still having fun elsewhere.

  1. Evaluate entertainment options. We live in an exciting time where we can have access to tons of media and entertainment at any time. Netflix, Hulu, Amazon Prime and more give us endless entertainment options. When looking at your entertainment budget, evaluate your options and see where you are really getting the most bang for your buck. For example, you might have access to Netflix, Hulu and Amazon Prime, but primarily use Netflix. Ask yourself if you really need the other two services. The point is to save money on similar entertainment items, so you can minimize your spending and have money to spend on other entertainment categories.

  1. Find the deals. One of the things I enjoy doing is trying to find deals for all of my entertainment. When I want to go out to eat, I look at Groupon first. If I want to see a concert or a play, I check out Goldstar. When I want to indulge in a massage or pedicure, I go to a beauty school and get services at a fraction of the price. Find ways to frugal hack your entertainment budget, so you have more room and could do the things you love.

  1. Know what is worth it and what is not. Sometimes you get in a habit of doing something as part of your entertainment budget at the expense of something else you love. I realized that a large part of my entertainment budget was spent on happy hours and dining out. I love those things, but I always told myself I didn’t have enough money to go to plays or see concerts. In reality, I did, but I was literally eating that money. Since supporting the arts is a value of mine, I decided to cut back on happy hours and dining out, so I could spend in alignment with my values and support the arts.

So given the example above, let’s say you have $200 per month for entertainment. You could divide up your budget like this:

  • Netflix: $9.99
  • Dining out/happy hours: $100 (approximately $25 per week)
  • Concerts: $40 (one concert per month)
  • Photography hobby: $50

This is just a sample budget based on hobbies and interests, but will vary from person to person. Your entertainment budget might be much smaller than that or might be larger. If you do end up having money left over in your entertainment budget, consider using the rest of it to put toward debt or add as a buffer for saving.

Be realistic and reasonable

When it comes to your entertainment budget, it’s hard to find the Goldilocks amount — the amount that is just right. It’s easy to spend money on things that we enjoy and make us feel happy, especially after we work so hard. On the other hand, when you’re so committed to your financial goals, it’s easy to cut this category down to the bone, which can sometimes backfire.

When I was aggressively paying down my debt, my entertainment budget was next to nothing. I paid for my needs and saved a little, but the rest went toward debt. I budgeted $20 to $40 per month on entertainment, which I typically used for happy hours with friends. That helped me put as much money toward my debt as possible.

The trouble with that strategy was that after I paid off my debt, I started doing things I hadn’t done in years and my entertainment budget went from 0 to 100 quickly. I started going to concerts again, dining out more, and overall l was just letting loose.

It was fun to stop being stressed about debt and adding more fun and creativity to my life. Though, I realized I started spending too much on entertainment after I was going to concerts nearly every week, all of which included alcohol and dining out beforehand.

I’ll admit, it was a bit overboard and I realized that I wasn’t focusing on my savings goals after debt, but enjoying the freedom in having newfound money that wasn’t just going to debt.

Regardless of where you are at financially, it’s important to find the balance. Cutting this part out of your budget or not being realistic and reasonable can lead to failure and misery. After all, money is a tool to do the things you want, so even if you are paying down debt or aggressively saving, you want to have money for some fun.

On the other hand, if you feel like you are spending too much money on entertainment, get back to basics and look at your income and expenses. Follow these tips to overhaul your entertainment budget and get back on track.

Entertainment should definitely be a category in your budget — but it should be reasonable and realistic, taking into account your hobbies, interests, and other financial goals.

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