Splurge Fund Benefits: Treat Yourself, Stay Financially Savvy
A splurge fund could help you handle impromptu purchases without knocking your other financial plans off track.
We all have those purchases that just make our day better. Maybe it’s going out to a nice meal at that cool new restaurant. Or buying that latest gadget because it’s so fun! Or deciding to go away for the weekend because there’s a sale on flights out of your local airport.
It’s natural to want to treat yourself to the things you love. And it helps your bottom line if you’re intentional with these purchases. When it comes to managing your finances, finding a balance between saving, spending, and happiness is key.
It’s safe to assume you want to improve your overall financial wellness. To do that, you want to prioritize major financial goals, such as buying a house or saving for retirement. But setting aside money for spontaneous purchases may allow you to enjoy important moments and experiences in life right now too.
Below we’ll dive into splurge funds and how having one could help you live a richer life.
Setting money aside for spur-of-the-moment purchases could help you avoid feeling guilty about these purchases.
Splurge money allows you to make purchases today while keeping your financial goals on track.
Having a separate splurge fund may help you make more intentional purchase decisions and avoid going overboard.
What is a Splurge Fund?
According to a recent study, the average person spent $314 per month on impulse purchases in 2022.1 That’s over $3,500 a year! A splurge fund could be just the solution to make these types of purchases less impactful to longer-term savings.
When saving for a house or trying to tackle high-interest debt, some people may feel tempted to cut out all non-essential purchases. A splurge fund designates a pool of money for fun purchases. It’s separate from your regular savings and serves as a guilt-free way to treat yourself to something special while still staying within the guidelines you set for yourself.
How is a Splurge Fund Different from an Emergency Fund?
It's important to understand the difference between a splurge fund and an emergency fund. They basically sit at two ends of the spectrum of savings.
As a reminder, emergency funds are for covering unexpected financial hardships, such as a job loss. Your emergency fund should have enough to cover your monthly expenses for 3-6 months—even more if you want to be extra prepared.
So, in practice:
If you were to lose your job but still needed to cover rent, that money would come out of your emergency fund savings.
If you were to decide to buy concert tickets on a whim for this weekend, your splurge fund would cover that.
Of course, during a period of financial hardship, you may choose to curb spontaneous fun purchases or redirect splurge funds toward essential expenses.
How Much Should You Keep in Your Splurge Account?
The amount you keep in your splurge account depends on your personal preferences and spending habits.
Consider the typical cost of your spontaneous purchases and aim to maintain a balance that aligns with these tendencies. You may also consider tracking your spending and adding up any purchases that weren’t part of your budget to give you an idea of how much you should keep in this fund.
For example, if you enjoy occasional shopping sprees that amount to around $500, consider keeping a little more than that in your splurge fund to cover those expenses and provide a buffer.
Benefits of Splurge Money
While the idea of creating a splurge fund may seem a bit unnecessary, having money on hand for impulse purchases offers several benefits.
Indulge in the Moment: By having a splurge fund, you’re able to seize opportunities for indulgences without needing to budget for them. Whether it's a last-minute weekend getaway or an upscale dinner at a new restaurant, having money specifically set aside allows you to embrace the moment and enjoy life’s pleasures.
Spend Guilt-Free: Another benefit of a splurge fund is being able to eliminate the guilt associated with impulse buys.2 Since you have already allocated the money for discretionary spending, you won't feel like you've hindered your other financial goals.
Avoid Going Overboard: Sometimes, overly strict budgets may lead to a feeling of deprivation, making us more susceptible to making impractical money choices in the long run. By having a splurge fund, you help create a healthy balance between disciplined saving and occasionally indulging in the things you love. It allows you to help satisfy your desires within clear boundaries, preventing you from going overboard with impulsive spending.
Keep Other Goals on Track: Another advantage of a splurge fund is its ability to help protect your other financial goals. Rather than dipping into your emergency or rainy day savings for unexpected purchases, you’re able to use funds from your splurge account. This helps make it easier to keep building toward your savings goals while still treating yourself.
Now that we’ve covered some of the main perks of having a splurge fund, let’s get into how you may choose to go about setting one up.
Setting up a Splurge Account
If you think a splurge account could be useful for managing your money, it may be helpful to set up a dedicated savings account.
Consider how much money you want to keep in this account and how you plan to add to it. It may be beneficial to add this fund as a line item in your budget to help keep this fund on track.
Choosing to open a separate savings account solely dedicated to your splurge fund provides a clear separation between other savings and this money, making it easier to keep track of how much you have available for splurges. Some people choose to have multiple accounts for savings goals, like a savings account for a wedding!
By making it a part of your financial plan, you’re able to prioritize both saving and spending.
A splurge fund may be a valuable tool in your financial journey. It helps you to enjoy life's indulgences without derailing your long-term financial goals.
By setting aside money specifically for spontaneous purchases, you help create a healthy balance between saving and spending.
Remember, building a healthy financial life is about finding equilibrium—and a splurge fund may be a great way to achieve that balance. By embracing the concept of splurge money, you are able to treat yourself on occasion, and continue on your path to financial success.