I’ve always found that the easiest way to let your budget get out of control is through spending on entertainment related products and services. This can be anything from going out to eat, having drinks with friends, going to see a movie, bowling, going to a concert – basically all of those things that we do for fun.

Now because there are so many different things that we can do to entertain ourselves, it’s important to set a limit each month for what you can spend on them. How much you allocate to your entertainment budget is dependent on what your monthly income is. My wife and I have budgeted 5% of our after tax income to entertainment. For example, if our monthly income was $2,000 than our entertainment budget would be $100 (0.05 x 2,000). You may be thinking to yourself, “that’s it? I spend more than that in a week!” It all depends on what your goals are.

My wife and I are saving up for new furniture in the house and to go on a trip somewhere so we’re allocating extra money to saving up for those goals as well. As a result, we have to scale back our entertainment so that we can achieve those goals without putting ourselves at financial risk. Remember, entertainment is a luxury. It isn’t something you have to have (unlike food, clothing, transportation and a place to live). So as you’re putting together this budget, be realistic about it. Most importantly, stick to the budget. Don’t go over a little bit here and a little bit there. If there isn’t enough money left int he budget to enjoy the activity, than you need to pass up on it until next month.

If you’re like me, almost everything you pay for goes on a credit card or debit card. Credit and debit cards have made it very difficult for us to stick to budgets. What works best for my wife and I is taking the entertainment money out of our checking account every month. Use cash to pay for all your entertainment. That way it will be easier for you to keep tabs on how much you’re spending. If you end up having money left over from the previous month, fantastic! Now you’ll have that money plus the 5% from the upcoming month to spend on entertainment. Plan ahead like that for your most active entertainment months (like the summer).

Good luck, and remember to setup your emergency fund and a hobby fund, too!

Related posts:

1. The Hobby Fund
2. Emergency Fund – Do You Have One?
3. The Secret to Credit Card Financial Freedom