Everyone should have a little mad money. What is mad money? It’s having a little pot of money that is just for you, it’s money set aside for fun, treats, or whatever you want to spend it on! (You don’t even have to budget this money – which is what makes it so fun!)
This was an essential thing that kept me sane while I was on a very strict budget when I was paying off $33k worth of student loan debt. It helped me not feel suffocated by debt and the tight budget I had at the time. If that sounds familiar, or if you ever feel like you want to “cheat” on your budget, maybe this is for you!
Currently I make enough money that I can generally afford a few splurges without busting my budget, and that is an amazing privilege. But I still use mad money for a little cash hoard that I sometimes dip into for yard sales or other silly stuff. It can be fun to have a little cash I don’t have to budget or record. (I’m a rebel 👿.)
Why you need a little mad money
If you’re currently trying to pay off debt then I’m sure there isn’t much leeway in your budget. At least, there wasn’t for me when I was in debt. Mad money was one of my secret weapons when it came to keeping sane on my debt-free journey.
Having little to no room for fun stuff or the ability to be spontaneous does not align with my personality. I like having choices and being able to do things when I want to (of course, within reason). So in comes mad money. This money is not a part of your budget or to be used to pay off debt. This is purely for those spontaneous nights out or self-care pamper sessions, guilt-free. Paying off debt is important, but so is living your life. Mad money allows you to do both without having to worry about not reaching your goals.
How to start a mad money fund
There are a few different ways you can start a mad money fund.
Most often my fund comes from the cash I’ve received from my family during the holidays or my birthday. Another way is if you earned a little extra money from selling something on Poshmark or Mecari and don’t want to put it towards your debt. If you receive a windfall of cash or raise, you could designate a certain portion of it for future fun. You could also give yourself a monthly allotment (if you can afford it without damaging your financial future.)
If I am significantly under in a category in my budget for the month, I’ll mark down that I spent the entirety of that amount but actually pocket the amount I didn’t spend. For example, If I had a $40 personal budget and I only spent $30 I will put that I spent $40 in my budget for that month, clear it out and take that $10 and I’ll stick it in my little mad money fund in my wallet. This aligns with the principals of a zero-based budget, but allows me to spend that money later while my budget says it’s already spent!… aka free for my brain.)
How I use my mad money
Ways I use my mad money can vary but more importantly, I like to be considerate of how I spend it. For example, if I am at the end of my budget or I just want something that I don’t want to have to reconcile into my budget I’ll dig into my mad money.
Similarly, if a friend invites me out for lunch and it’s just not in my budget to go that month then I’ll access my mad money. Like anything I want, I try to make a considered effort to think about every purchase beforehand.
If you’re the type of person that wants to “cheat” on their budget or otherwise rebel from your own plans (guilty), a small fund of money set to use for whatever comes up that brings you joy could help you learn to have more fun with money while still preparing for your future.
Why you should keep your mad money and budget separate
I keep this money in cash only and in a separate pocket in my wallet or in a special spot in my home. This is so I won’t accidentally spend it on something boring or count spending it again.
I use it only as an emergency fund for joy and don’t just spend this fund willy-nilly because it’s not an infinite resource.
Remember you’re the one who gets to decide how you want to use this money. It’s really a tool to help you, as it did me, to not feel as trapped and constricted by budgets. Consider setting the extra money you earn or receive aside and not using it right away for something that you want in the future. It’s worked great for me and I highly recommend it!
I’d love to know if you keep a mad money fund and what rules you have for it. Let me know in the comments.