In praise of the adult allowance

In the past, many Get Rich Slowly readers have sung the praises of the “adult allowance”. Though I've read enthusiastic comments supporting this idea, I've never paid it much heed. To be honest, it's always sounded lame, and I didn't think it would be useful to me. I was wrong.

Accidental Allowance

Before our short vacation in early October, I pulled $200 out of the ATM. This is unusual for me. I don't like to carry a lot of cash. I find it easier to track my spending when I use credit or debit cards.

I didn't spend very much on our trip. I bought a few old books, but mostly we did low- or no-cost sightseeing. When we returned home, I still had about $160 in my wallet.

Normally, I would have put that money back into the bank. I kept it in my wallet instead. For the rest of the month, I used it whenever I bought something that wasn't a Need. This wasn't anything I had planned to do, and it wasn't even conscious at first. It just happened. Eventually I realized that I had been forcing myself to purchase Wants with the leftover cash.

By the end of October, I'd spent nearly all of that $200. I'd only used my plastic for play once or twice. “Interesting,” I thought. “What if I were to do this intentionally? What if I pulled out $200 for the month of November?” So I did.

Cashing It In

At the beginning of November, I withdrew another $200. All month, I used that money whenever I purchased something that wasn't a Need. The new Popeye book? Paid with cash. Quantum of Solace, popcorn, and red vines? Paid with cash (and without complaint). A trip to my favorite cheap taco place for lunch? Cash again.

As the weeks went by, I began to feel liberated. By allocating this money to use however I pleased, I was freed from feeling guilty about every little thing I bought.

Still, I wasn't spending the money willy-nilly; in fact, I found myself considering every potential purchase carefully. Because I knew I wanted the $200 to last the entire month, I was careful with it early on. I passed up easy treats. By pinching pennies early, I was able to afford a splurge I had thought to deny myself.

When tickets for The Decemberists sold out, I gave up hope of seeing their post-Thanksgiving show here in Portland. But entering the final week of the month, I still had $100 in my wallet. Because of this, I purchased a $60 ticket off of Craigslist, something I normally wouldn't have even considered. I was happy to do it.

Now I'm ready to pull out another $200, and I've come to a realization: That adult allowance idea I used to think was lame? I actually like it!

Part of a Balanced Budget

Though the initial $200 withdrawal was arbitrary, it works well for my income and my circumstances. I can afford to give myself $50 a week without compromising my other financial goals. It works well as part of my balanced money formula. I intend to use this number going forward, at least for a couple of months.

Though I'm nearly sold on the adult allowance, I still have a major concern. As you know, I'm a proponent of tracking every penny you spend. This is easy with debit and credit cards, but I'm notoriously poor at accounting for my cash spending. I'm awful at it. I'd love to hear what others have done. If you give yourself a cash allowance — even if you don't call it that — how do you handle the record-keeping? For now, I'm just logging it in Quicken as $200 in “Misc Expenses” when I make the monthly withdrawal.

I'm also interested to hear other tips and tricks from folks who have a cash budget for fun. How much do you give yourself? What do you spend it on? (Though I'm spending mine on Wants, it doesn't cover all wants. When Kris and I go out to dinner, I stick to my traditional system.) By using cash for my discretionary spending, I've found I'm less likely to make impulse purchases. Have you found that to be true as well?

Photo by dyobmit.

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ben
ben
11 years ago

This is similar to what I do. Unfortunetely my monthly allowance is around $350 which is probably high but I’m weak when it comes to spending on food. I automatically deduct this amount from my budget each month and the extra cash left over, I tuck away somewhere. When this accumulates, I use it towards bigger “wants” purchases like that laptop I have been craving or a nice tv. It actually works very well because you have given yourself a goal and a boundary inside which you have no guilt spending.

Sam
Sam
11 years ago

We use and allowance for all discretionary spending. We each get $500 for half the month which covers a discretionary spending which includes groceries, gas, dry cleaning, eating out, entertainment, small Home Depot expenses (we have real estate investments so larger HD expenses are funded by another source), personal care, gifts (except not holiday gifts) and clothes. While many people would object to calling groceries and gas disrectionary we still pay for those expenses out of our allowances. We use debit cards which helps with the tracking issue you mentioned. Basically on the first and fifteenth, I pay all the… Read more »

J
J
11 years ago

We do it but use separate bank accounts with debit cards. One joint account plus a personal account for each of us. Each paycheck a small portion goes into the personal account with everything else into the joint. The personal account money is basically our allowance. It covers cash, dining out, entertainment, etc. You can set up quicken or mint to ignore those accounts or track them.

Seamus
Seamus
11 years ago

My wife and I do the same thing. Each get $250 a month as ‘fun money’. We each set up Schwab accounts, which gain a small amount of interest, and have debit cards with those accounts. If interested, this would be a good way for you to track each penny, if you still desire to do so. We started this about four months ago and I have yet to spend a penny of the money, actually gained a bit of interest. I haven’t decided if I want to have a lot of small splurges or save for a bigger one,… Read more »

Allison
Allison
11 years ago

For record-keeping, just keep your receipts! Put them in your pocket, and at the end of each day, you can either put it into your spreadsheet, or put them in a little receipt box and tally it up at the end of the month. Just toss them when you are done. 🙂

Katherine B.
Katherine B.
8 months ago
Reply to  Allison

That’s similar to what I do. I put the amounts into an Excel spreadsheet where I track my spending. My main difficulty though, is at work. The vending machines there do not give receipts.

Steven
Steven
11 years ago

I think it’s very important that the “allowance money” not need be recorded penny-for-penny. It’s fun money, totally unaccountable (except for the fact that you mark $50 / week as “personal alloance” on your budget). For my wife and I it’s important to have this discressionary money that we don’t have to save receipts, etc.

Money Minder
Money Minder
11 years ago

My husband likes to have a cash allowance. He takes $40 per week to cover whatever small expenses (lunch, books etc). I use to think think this allowance was remedial, but he likes it. It makes cash flow planning easy and sets a good example for the kids.

womanofthehouse
womanofthehouse
11 years ago

Wow! That’s a lot of money, y’all! My husband and I get $20 a month each. If we took $200, we couldn’t save anything. But to each his own. I know no two financial situations are alike. 🙂

Amber
Amber
11 years ago

My husband and I each get a set amount of “blow money” every two weeks on my payday. He gets $40 every two weeks and I get $20. We mostly use it for lunches out at work. His job requires him to eat out more which explains the discrepancy. I log the withdrawal in Quicken and use the categories I created for our blow money. Beyond that, my record keeping doesn’t particularly care where it went. I also use cash for groceries and almost anything bought at a brick and mortar store with a cash register. 🙂 I log it… Read more »

Brian
Brian
11 years ago

I used buxfer.com to track my spending. It is nice for cash spending, because you can send a text from your phone to an email address they provide, and the amount and description will show up in your buxfer transactions.

Luke
Luke
11 years ago

Hey JD,

Great post! I’ve done something similar and have found it very useful and liberating as well.

Currently, I don’t use cash for my “allowance.” I use the envelope method of budgeting and track it virtually (not with cash) using software I wrote (www.neobudget.com). This lets me have the benefit of using my debit card, while still tracking my budget with envelopes.

I have an envelope for my money and my wife’s money. We can each use this money at our discretion without fear of hurting our budget. It’s very liberating, and I second your endorsement.

Ty
Ty
11 years ago

I try to track every dollar I spend with the exception of what I call blow money. I give myself $300 a month. I only get $100 at a time. I spend this money on fun stuff or whatever I choose to do with it. I dont account for what I spend it on. I have found that I have become somewhat hesitant with this money.This past month I only spent $167. The balance goes into my general savings account at the end of the month which draws 3.75% APR in an online account.

Nathan
Nathan
11 years ago

What I did to start tracking cash was to treat it like another account. I added a ‘Cash’ account to my budgeting software and any time I balanced my checking or savings accounts I balanced the cash account as well. Also, whenever I made a withdrawal I would mark it as an account transfer along with an expense for any fees that might be included.

Eric J. Nisall
Eric J. Nisall
11 years ago

If you’re only using the money for wants and “fun”, JD, then you might want to simply set up an expense account in Quicken titled “Fun Spending” or something along those lines. You expressly state that it is a small amount and you already know what the money is being used for. I really don’t think that you need to drive yourself completely crazy with trying to track where every penny ultimately ends up. Personally, I can’t add any helpful tips, since I purposely try to use credit for everything. Like you said, it helps keep track of everything not… Read more »

Terri W
Terri W
11 years ago

We track ours in Quicken as “Mad Money”. We have a separate ING account set up titled “Terri’s Mad Money” and every paycheck, the specified amount gets transferred into that account. When I buy something, I tell my husband (who manages our Quicken set up) to take it out of my Mad Money and he transfers that amount back to our regular account to apply towards to CC that month. A little more complicated than perhaps necessary, but it works well for us. We set it up like that because, for me, once we went to a track-everything Quicken system,… Read more »

chris
chris
11 years ago

$360.00 each month for me. That includes kids’ school lunches, dog grooming and pizza on the weekends. I always make sure I have a couple of dollars in my wallet. Mostly, I take out one dollar bills when I make this withdrawl from the bank each month. I always have dollars left over at the end of the month. I started doing this several years ago. Also, I never spend change. If I have to break a dollar, so be it. I always stick the change in a bag and every couple of weeks I have a nice, sizable deposit… Read more »

BB
BB
11 years ago

I actually use the cash system for all my spending beyond rent and utilities. Twice a month, I get $400 which I use for grocery, clothes, beer/wine, eating out, vet bills, gas (although this is rather annoying, because you have to prepay, then go get your change after pumping), gifts, and anything else that isnt a utility or rent related payment. I actually started setting aside money out of this $400 for Christmas gifts as well. It has been working very well for me. The first few cycles were rough (I was moving cross country AND getting a new puppy… Read more »

Carrie
Carrie
11 years ago

I agree with Eric. No need to track the items bought with the weekly cash. For myself, I take out $40 weekly (in Quicken, this category is Cash). My coworker does the same thing, and I’ve been following his advice: always take out the same amount weekly (or monthly). If you have money left over, put it in an envelope. The accumulated surplus can be used for weeks when you need more money. Or, if you build up to $50, say, you can drop it into savings. It’s a very simple system, and as JD says, there is no guilt… Read more »

dee
dee
11 years ago

When my (now) husband and I first moved in together we merged finances. At the time I was a graduate student and he was well employed and making three times as much as my stipend. At that time I never felt like I could spend any money as I was not contributing as much (note: this was entirely my feelings and never in any way came from him either directly or indirectly). This frustrated him because he really felt that the size of our incomes did not indicate our contributions to the household. That was when we started an ‘allowance’.… Read more »

Erin
Erin
11 years ago

We’re pretty meticulous about tracking every penny, except when it comes to our fun money. At the beginning of the month, I pull out cash for me and my husband, and that’s the last it’s ever discussed. It’s considered “spent” at that point. Throughout the month, we get to individually decide where we spend our own money. If I want to eat lunch out every day, I could probably do that. If I want to save it all toward a big fun purchase, I could do that, too. My husband keeps his as cash in his wallet. I deposit mine… Read more »

Melanie
Melanie
11 years ago

Eric– what stops people from going back to the ATM is the same thing that will keep them from going anytime they want, with or without an allowance: A decision to do things differently. You can’t change their mindset– only they can, and their habits will change as a result. We get paid weekly and I need to be accountable to the budget weekly anyway. For a while I tried to go without allowances–because I thought it was lame too– but my husband is a huge impulse spender with many habits I refuse to budget for, such as: “I need… Read more »

Matthew Brundage
Matthew Brundage
11 years ago

For me, an ATM pull isn’t an expense — it’s a transfer to the “wallet” account. Most of the time, the balance is accurate, down to the penny. And, no this level of exactitude doesn’t drive me crazy. In fact, I think it’s therapeutic. 🙂 I’ve used Quicken since 1993, but I’ve never recorded the vague “Misc. expense”. I’d rather create a new category (or modify an existing one) than fail to label something properly. Sub-categories are your friend. And sometimes, sub-sub-sub-categories (such as Home > Utilities > Internet > Fiber). Another example: every food purchase is sub-divided into either… Read more »

Karen
Karen
11 years ago

We’ve been doing this for years, and it works great!

Josh
Josh
11 years ago

I was of the same mind as you were until I forced myself on an “adult allowance” about 6 months ago after I changed jobs and had to switch bank accounts. Instead of getting my salary paid into my personal account and then paying the bills from there, my salary is now deposited into the family account. I set up a personal account separate from the family account and transfer a certain amount each month. I use this money for all costs outside of the family spending: public transportation, entertainment, breakfast and lunch (while at work), gym membership, etc.. The… Read more »

Annie Jones
Annie Jones
11 years ago

I use a computerized “envelope” method of budgeting and I have an envelope called “Allowance”. Beyond that, I don’t track it; it’s completely discretionary.

Megan
Megan
11 years ago

I have two separate checking accounts, my ING account covers the things I need, and my local bank account covers my wants. I have a small portion of each paycheck direct deposited into my local bank, but the majority of the money goes to the ING account. I never thought of it as an allowance, but I guess it really is. This way I can use the debit cards for both accounts to track both wants and needs, but still keep them separate.

Jennifer
Jennifer
11 years ago

The adult allowance, or mad money as we call it, works very well for us. Although it took several months of adjusting to find the right amount for my husband. We had to keep raising the monthly amount to fit his spending. But he still spends far less using cash than he did before. He’s gotten in the habit of only carrying a small part of his allowance with him. It helps him manage the money and make it last. As far as tracking, you do have a general idea of what you’re spending the money on. If that category… Read more »

Jeff
Jeff
11 years ago

Does anyone use the extra money left over as “rollover” money? – ie: saving money for a big ticket item and not buying it until you have saved enough of your fun money to justify it?

Eric J. Nisall
Eric J. Nisall
11 years ago

@Melanie:

It was sort of rhetorical question but your reply was specifically my point–no matter if you use envelopes or allowances or any other tricks, it makes no difference if the person isn’t committed to changing their ways. And it’s not like I’m out trying to change people (if that’s how it seemed), many clients come looking for help in changing their mindset. They come in complaining of an inability to save or to control their spending habits, despite using all of the so called “tricks” that get mentioned in forums and pf blogs, but to no avail.

Scott NJ DAD
Scott NJ DAD
11 years ago

Anything that helps you exercise more control over your dollars is a good thing. Remember there is an entire industry (advertising) devoted to separating you from your money. Many of the things they do ride the line of morality. Of course the more you want to be in control, the more control you will have, but like anything else, it is always one day at a time.

Ian
Ian
11 years ago

I use Quicken and treat cash withdrawals as “entertainment.” It is basically always eating out, drinks at happy hour, a coffee in the morning, stuff like that. These are things I consider as luxuries and non-necessities. Not tracking every penny of it makes it more enjoyable. Month to month I look at my “entertainment” expenses and gauge if it is to high or to low and adjust. I don’t have a set amount that I start with, but the idea sounds good so I may try it. Good article.

dkyr
dkyr
11 years ago

Regarding tracking of cash payments i just use my mobile phone, something that all of us have always with us so at the moment i make the payment i take out my phone and i create a memo (on daily/weekly/monthly basis depending on the level of detail e.g. personally i don’t care on which day i spent the money but only for totals on a monthly basis)and then once a week i just copy the numbers to the excel file i use to penny track my expenses.

sandra_uk
sandra_uk
11 years ago

We have been doing this for about a year now. Just £50 each a month for ‘fun stuff’. The reason being my husband is an avid collector of DVDs, books, magazines whereas I am not, and he would feel guilty that he was spending more than ‘his share’ of our combined income. Now we both have £50 to spend guilt-free each month!

Trina
Trina
11 years ago

I suspect that people have a tendency to spend all the money labeled as “fun” or “allowance” money, whether it’s on many small items or one large splurge during the allowance timeframe. If you have money to burn, then it’s not a problem. If you’re trying to build up your savings, however, this could become the proverbial hole in your pocket. It’s the little things that keep people from controlling their spending. While $200 a month doesn’t seem like much, it becomes $2400 per year spent on unlabeled non-essentials. And if both spouses give themselves an equal allowance, that becomes… Read more »

Scordo.com
Scordo.com
11 years ago

I’ve always done the “adult allowance” thing because it prevents me from using my credit card.

Here’s how I do it: I simply take out $60 per week and use it for gas, occasional coffee, etc. This may sound a little extreme, but I don’t buy lunch or do much impulse shopping, so I usually have some cash left over at the end of the week.

I would suggest folks try it for a week! Oh, we live just a few minutes outside the largest city in the US (so it can be done!).

Best,
Scordo

Jason
Jason
11 years ago

All this sounds like is the Envelope System that Dave Ramsey (and others) recommend. I’ve been using it for many categories for years.

J.D.
J.D.
11 years ago

Eric (#14) wrote: One thing that I did think of while reading your post, was the problem with poor money management. If someone cannot budget money, or has no self-control, what is to stop them from just going back to the ATM when the money runs out before the end of the month, especially if they never really had any kind of structure like that in their life before? Yes, this is very important. I think this is an example of doing what works for you and your situation. This sort of allowance would not have worked for me a… Read more »

Lori
Lori
11 years ago

We’ve just created a budget (after finding this blog and getting informed about personal finance). Things are tight and our expenses are high (daycare for 2 year-old twins is as much as our mortgage!). My husband and I each get a $20 allowance each week for discretionary spending. This would include lunches out, beer or wine, a cup of coffee or tea. We had to eliminate dining out from our budget. So if we want to go out – we save our allowance and combine forces, so to speak. Any unspent $ is saved in a mad money jar. We… Read more »

Rob in Madrid
Rob in Madrid
11 years ago

I don’t use an adult allowance per se but I do all my household spending cash. I keep track of if by requesting receipts and marking it in a small note book. I divided into 4 catagouries Gas Shopping Misc and Coffee. For misc expenses car repairs, new running shoes etc I simply note the amount at the bottom of the page. end of week and month I add up all the expenses.

I find this much easier to track my spending this way than with the computer.

J.D.
J.D.
11 years ago

Jeff (#28) wrote: Does anyone use the extra money left over as “rollover” money? – ie: saving money for a big ticket item and not buying it until you have saved enough of your fun money to justify it? I’ve thought of this, but because I’m new at the allowance, I haven’t actually done it. I’m not sure how this would work for me, though. The really big things that I want to save for — like a car — have their own special subaccounts that I’m using. Of course, one thing I could do is if I have cash… Read more »

Ian
Ian
11 years ago

I’d like to piggy-back on what JD just said in #36. I used to spend willy-nilly (as long as bills were paid). I used to think that $2-3 ATM was reasonable and really didn’t care about the fee. Since I’ve “tighten the screws” on my personal spending and budgeting, I rarely use an ATM that charges me a fee. That alone is probably saving me $100-150/year. I think you need to “tighten the screws” before you can start experimenting with allowances and such.

Eden
Eden
11 years ago

I think the best way to track your cash is to get in the habit of always asking for a receipt.

The next best thing you can do is enter your transactions daily.

Another option would be to just expense your $200 when you withdraw it and call it ‘fun money’ or something like that.

Kim
Kim
11 years ago

Excellent, J.D.! We give ourselves $100 per week each. At the end of the week, the leftover goes in an envelope and is used to purchase wine by the case. This works out to about 1 case every 3 – 4 weeks. The beauty of the system is that instead of eating lunch out, I’ll pack a sandwich – do that twice a week and there’s a bottle of our favorite table red! J.D. I just ask for receipts for everything, stick ’em in an envelope and go over the receipts every month to see where the pocket $ went.… Read more »

Amber
Amber
11 years ago

(I don’t know how to quote on here.) I absolutely roll-over our blow money. We get a new set every two weeks regardless of what has been spent before. I do not think it is a license to spend money that I wouldn’t have spent otherwise. First, in my case, we are talking about a whopping $10/wk! Second, going out to lunch once a week is something I have done for YEARS and this just puts that expense into the “allowance” category. Extras can be thrown into the grocery cart, but since the amount budgetted for groceries (also in cash)… Read more »

Steph
Steph
11 years ago

Ask for receipts, update your “misc” (which I would retitle “untracked”) entry with the amounts you’ve spent so far each time you’re using Quicken and at the end of the month you’ll either have a balance remaining in Untracked equal to the amount you missed tracking or you’ll have cash in your pocket of the balance. It’s just like reconciling the petty cash for a business. You can continue to update it as it’s spent even if you exceed the end of the month to do it. This way you track what you can and it’s still no more hassle… Read more »

The Happy Housewife
The Happy Housewife
11 years ago

Love the idea of adult allowance. We have been using the cash allowance system for about a year. It has actually improved our marriage! My husband and I each get our $$ at the beginning of the month, no strings attached! We each spend (or save) the money as we see fit and everyone is happy.
Toni

Josey Gomez
Josey Gomez
11 years ago

Hello,

For recording these transactions I put in my money management program ATM withdraw and then SPLIT the individual transactions that I have saved with paper receipts. The effect on my monthly report is that I have an account of every penny spent and the category.

Mary
Mary
11 years ago

I love love love my allowance. It’s one line item in my budget and I don’t track how I spend it. I give myself $200 per paycheck (so basically $400/month) which is supposed to cover all food and wants. Since starting to give myself an allowance, I’ve seen my bank account grow substantially. I don’t think I will ever go back to using my debit card as “cash” again. Do I sometimes go over and use my debit card? Yes, but because I have this allowance it means there is always wiggle room in the back account since it restricts… Read more »

Adrienne
Adrienne
11 years ago

Been using “allowance” ever since my husband and I combined our money (I think it’s even more important if you have joint money to have some of your own). We keep it in separate accounts and use our debit card to access (neither of us keeps a lot of cash on hand). I like to keep a sizable balance (in case I have a bigger want) while my husband is usually at zero. I really feel that our allowance has kept the financial peace in our family. Next year we’re also going to try going to a cash allownce system… Read more »

Lee
Lee
11 years ago

I track pocket money like this using the ATM receipt. I keep it in my wallet and jot down what I spend as I go, usually rounding to the nearest dollar. There’s almost always a pen at the checkout.

When I’ve spent all the cash, I take the receipt and record the details of what I spent in Mint using the “split” feature.

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