Most of us make investments to fulfil goals such as building a retirement kitty, buying a home or land or future investment options, home renovations, marriages, vacations and cars. We also ensure we have an emergency fund that will handle our emergencies whenever it strikes.
But most of us, including me, don’t have a splurge fund. A splurge fund is nothing but a fund you build for your guilty pleasures and last-minute impulses. One can use a credit card, but I am personally not a big fan of using credit cards for lavish purchases. It just doesn’t feel right to me.
For instance, you might want to make an unplanned trip to Bali or buy fancy dresses and makeup items for your birthday. While you might also plan for these purchases, we can’t plan for everything.
Life should be fun, and having a splurge fund helps us to do guilt-free spending. The guilt-free spending will look different from person to person. You don’t have to judge yourself.
Now, let’s see how to build a splurge fund.
How To Build a Splurge Fund?
Know your why: ‘Why’ is undoubtedly an important question to answer before taking any major endeavours. Knowing your financial goals is the first step to investing. Similarly, knowing why you are saving money can help you build a splurge fund.
Determine how much you can allocate: If you have a budget that outlines your income, expenses, and investments, then you might need to cut back on your expenses to make money to save in your splurge fund.
On the other hand, if you don’t have any existing investments, it would be better if you plan for your primary goals, such as retirement and other financial goals. After allocating the required money to these goals, you can look at saving for a splurge fund.
The amount needs to be realistic so you can occasionally indulge without compromising your financial stability or progress towards your other goals.
Prioritise your splurges: You can list the things you want to splurge on and then prioritise them. There will be a few things that will give you a higher level of enjoyment than others. So, it is important to prioritise them. Otherwise, you will soon run out of money.
Automate your savings: One of the hardest things to do is to invest money every month. So, you can automate it if you don’t want to take that decision every month. You can do a Recurring Deposit or Systematic Investment Plan, and that specific amount will be deducted from your savings account every month. You can also set up automatic transfers from one savings account to another.
Track your savings: You will be motivated to keep up with your savings plan and save more when you see your splurge fund growing.
Benefits of Having a Splurge Fund
Enjoy guilt-free spending: This is a no-brainer. A splurge fund lets you spend without guilt as you build the fund after you have taken care of your financial goals. You can treat yourself without affecting your savings or budget.
Helps you to enjoy life: We all know that life can get boring as most of our lives take place around the same routine. Splurging now and then helps us to be spontaneous and enjoy life in a way that is meaningful to us.
Motivation to stick to your budget and investments: Saving money for fun might motivate you to stick to the budget and invest in financial goals.
Avoiding impulsive spending: It will help you curb impulsive spending habits. We all have been in scenarios where we regret our impromptu purchases. With a splurge fund, we can be more thoughtful about our purchases.
So, what do you think about the splurge fund? Are you planning to build one splurge fund?