Nerdwallet: Save for what makes you feel good in 2022 | State
Laura McMullen NerdWallet
You probably know how to plan and save for the big and annoying expenses i.e. financial needs. But what about the fun stuff? Expenses that don’t put a roof over your head but provide joy, rejuvenation, and other benefits that are difficult to quantify are also worth saving.
In fact, they deserve their own account, says Delia Fernandez, a certified financial planner based in Los Alamitos, Calif.
“Find out what keeps you going, what makes it all interesting for you, and put some money aside to make it happen,” she says.
WHAT TYPES OF EXPENDITURE ARE WE TALKING ABOUT?
When it comes to wellness spending, each person has their own preferences, says Aja Evans, New York-based financial therapist and licensed mental health counselor. For example, some people would find that an intense cycling class is energizing and builds self-confidence. Others prefer to do just about anything else.
Consider what goods, services, and activities generally bring you joy. Yes, your budget will determine what exactly you can afford. But, for now, think about it. Fernandez asks, “What will get you through these times? And what is it that makes your life precious? What refreshes you; what inspires you?
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Some ideas: services like massages; goods like fresh flowers; activities such as vacations and date nights.
WHY SET UP A FEEL-GOOD ACCOUNT?
Allocating money to these types of expenses can help you be more intentional in your spending. For example, suppose you put $ 25 of each paycheck into a vacation fund. With that money safely stashed away, you can’t recklessly spend it on impulse buys.
You also protect that money from financial demands. Otherwise, if all of your spare cash were in one bucket, Evans says your personal care expenses would likely be the first to go down when cash is tight.
By spending money on a specific type of expense, whether it’s a mortgage or a manicure, you are creating a budget. And budgets help you avoid overspending.
Suppose you have up to $ 50 to spend each month on brunch with friends, and you’ve already spent $ 35. This weekend you might still enjoy brunch but steer clear of the mimosa which would put you over the $ 15 you have left.
Ideally, this plan also covers any potential guilt of spending money on yourself. As Fernandez says, “You put it aside for that.
HOW CAN I ADJUST THIS IN MY BUDGET?
I hope you have been convinced to make yourself happy in this New Year. Now plan these treats.
One way to determine how much you can afford to spend is to apply the 50/30/20 rule to your monthly net income.
The purpose of this budget method is to allocate your money as such: 50% towards needs, 30% towards wants, and 20% towards savings and debt repayment. If you follow this framework, your new wellness fund would come under this “wants” category.
Aren’t you trying to officially budget at this point? Here’s another approach: start with your monthly after-tax income, then subtract any necessary expenses (needs), which include housing, food, transportation, basic utilities, insurance, childcare, and more. other expenses that allow you to work, as well as minimum loan payments.
Then, subtract contributions to savings goals (like an emergency fund), as well as payments to retirement accounts and debts.
What is left is your discretionary money. Decide how much you will regularly contribute to your new fund. “It could be $ 10. It could be $ 50. It could be $ 100,” Evans says. “The main point is that you are actually saving money.”
Ideally, those contributions go straight from your paychecks to a new fund, Fernandez says. (Work with your employer to set up a new direct deposit.) If this method is not available, set up recurring automatic transfers from your daily check to the new account.
WHERE TO KEEP THIS MONEY?
Fernandez recommends keeping this fund in an online savings account, on which you will likely earn interest.
Note that you are generally limited to six withdrawals or transfers per month from savings accounts before incurring any fees. This rule was temporarily relaxed during the pandemic, but to avoid fees in the future, consider a savings account only for infrequent withdrawals. Use it for your monthly spa visit, for example. Or watch your savings grow as you collect money for a big trip or purchase.
If you plan to use this fund more than six times per month, for example for frequent morning smoothies, go for a checking account. Open it at a financial institution you don’t already use, so the new account isn’t too easy to use for day-to-day spending. Aim for a free account with no monthly fees or minimum balance. A few of these chequing accounts even earn a little interest.
Take advantage of the items you saved for. Then regularly review your plan, says Fernandez. You may want to change the amount of your contribution, maybe more after an increase or less after an emergency expense.
What you save for may also change. Maybe you will end up preferring drawing lessons over cycling lessons.
“We all have to have a plan,” Fernandez says, “but we all have to update it and change it when the facts change.”