According to the research in a 2019 study, Americans say they spend too much on entertainment. How can you spend too much on having fun (i.e., going out to dinner, shopping and vacations)? I was surprised when I read this article because it doesn’t jive with the figures at the US Department of Labor.
Most Americans spend only a sliver of their budgets on entertainment (4.75%). Meanwhile, the three biggest expenses are housing (34.9%), transportation (16.01%) and food (11.93%). Clearly, Americans don’t see spending on these three items as a “mistake.” But maybe that’s where the biggest mistake is really hiding—in these seemingly “fixed” and “essential” expenses.
What if we altered our budgets a bit to spend more on entertainment? For example, we can buy a used car, walk or cycle more often, move closer to work to reduce commute time. Then we can allocate half of our transportation budget to the entertainment budget, right?
Data Source: U.S. Department of Labor, Bureau of Labor Statistics, Consumer Expenditures.
Nobody loves commuting. Plus, it isn’t good for either your mood or the environment. So you get a double bang in life happiness and health if you walk or cycle more often simply by reallocating your spending from transportation towards entertainment. Does your car give you more or less joy than going out to dinner with a group of friends?
The research on happiness reveals you’ll be happier and live longer by spending money on cultivating friendships vs a bigger house or fancier car. Cut your transportation expense in half, and you’ll increase longevity and happiness. Plus, you’ll have more disposable income for the fun stuff. Better yet, allocate the extra savings into your financial freedom account. This way, you can retire sooner and have more time for fun! As long as you are on track for your retirement savings, you can spend the rest guilt-free on enhancing your life now. (If you aren’t sure whether you are saving enough for retirement, read this blog first. It is mission critical for life happiness. The sooner you adjust your spending and savings to ensure you are on track, the easier it will be).
As an alternative, consider buying the less expensive, smaller house in the neighborhood where the free schools are good. Work to cut down your housing expense from 32% to 20% (or 25%) of your total budget. Then, reallocate that extra 5% – 10% towards your financial freedom fund. Doing so may enable you to retire 10 years sooner. Remember, the bigger the house, the more expensive it is to maintain. It takes more time to clean, more energy to heat and cool, more work to maintain the bigger yard, more furniture, and so on.
Is your home giving you the greatest joy? I’m a big fan of investing in real estate. Yes, your home is an investment. However, I’m not a fan of sacrificing happiness. The fun stuff certainly makes life worth living!
When I married, I told my husband that I don’t clean the house, iron, or file papers. So, if we couldn’t afford a house cleaner, then we should live in a smaller house that would afford us that luxury. I’d rather live in a cozy home and avoid these domestic chores. Then, I can spend my time doing more coaching, writing books or speaking. Now, that is fun!
Instead of assuming spending on entertainment is a big mistake, take a look at your fixed expenses. See if there is something that you could change to free up more money for the fun stuff. I’d aim for doubling your entertainment budget from 5% to 10% as a rough guideline. Of course, first make sure you are saving at least a minimum of 16.6% into retirement (Wade Pfau’s safe savings rate). I know, boring, but hey, your future self will thank you for doing it. And, wouldn’t it be nice to know how much you can spend on the fun stuff without feeling one bit guilty?
