No matter how tight you keep your budget, there is always some thing you are apt to overspend on. A vice is defined as a weakness in character, but for our purposes we’ll go with a more lenient definition. Our new definition of a vice is it’s something you admit is important enough to you that you allow yourself to spend frivolously on it. At some point we are going to work the word ‘moderately’ in there but are you with me so far? If you are, your vice probably popped into your head immediately. Since I brought up the topic, I’ll share mine, my vices are clothes and eating out. And as much as I’d love to just go crazy spending on these things, I limit myself. One, because if I didn’t it would drown me, and two, by limiting my spending I increase my enjoyment when I do spend on them.
You should be able to name yours quickly, but to help jog your memory here are a few common vices:
– Home decorating
– Dining out
You’re probably thinking, how is exercise a vice?? But hear me out. Per our new definition, a vice is something you spend frivolously on, meaning you are spending more on your vice than is likely necessary. A gym membership is something which can easily fit into many budgets, but if you’re a member of the fanciest, most pimped out gym in the city, chances are you’re spending more than you need to. And that’s okay, as long as it fits my vice budgeting criteria. Of course, there are criteria! Don’t act surprised.
Vice Budgeting Criteria:
– Moderation. I could just stop here, but since we’re talking about vices you probably aren’t thinking clearly when faced with your vice of choice. Moderation really is going to be your friend here. If you use all your powers of will, and manage to spend in moderation when it comes to your vices, you can enjoy your vice while avoiding going over budget, or worse going into debt.
– Use 50% of your surplus. If you are meeting all of your obligations each month, including paying all bills, saving money regularly, and contributing to your retirement account, then you can spend 50% of your surplus each month on your vice. Why 50%? Because you need to limit yourself. Whether it’s a college fund for the kids or a down-payment for a house, the other 50% needs to do something for your future. But, there’s a catch with the 50% surplus rule…
– Don’t spend over 5% of your take-home pay on your vice. If you bring home $4,000 a month and your monthly surplus in a given month is $500, and you use 50% of this on your vice that’s actually over 6% of your monthly take-home pay. This is too much to spend on a vice. So here’s the rule:
Net Monthly Income x 5% = Your Vice Budget
You just have to remember, you don’t get to spend 5% of your budget on your vice, unless it’s surplus. This isn’t some extra budget category you get to add just because. This is a reward for spending less than you make. Let me put it this way: If you bring home $4,000 a month and your surplus is only $200 a month, you don’t get to use the whole $200 on your vice. You have to first divide it in half which leaves you with $100 to spend on your vice and $100 to spend on other goals. Conversely, if we go back to the original example where you have a $500 surplus, you would use $200 for your vice and $300 for other financial goals.
It’s a lot of rules, but here’s the thing, by definition your vice is something you are buying with a ‘who-gives-a-crap’ attitude. So you need to learn and know these rules by heart so when you are faced with a major vice purchasing scenario the rules will kick in automatically. Spending smarter is the best way to get what you want all around.
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.