Making the Most out of Your Entertainment Budget - The Dollar Value Rule
There is an abundance of resources available to help people track their personal spending and budget their funds for a given time frame. Most often, these budgets usually come down to the following:
Setting aside (and usually spending) a set amount of money…
For a specific time frame…
For a specific purpose.
For many people, this usually ends with a dollar value allocation to living, food, transportation, and entertainment. However, this dollar value allocation generally doesn’t provide any more restrictions or guidance on how to spend the funds, and the funds used for discretionary entertainment spending are particularly vulnerable since they can be spent on a movie, concert, or weekend trip (among many other things).
What we are talking about today is some guidance on how to view your entertainment budget and hopefully make it work better in your circumstances. As always with personal finance, your situation and personal preferences play a huge role in your results, and this strategy should be used to help you make your entertainment expenses provide more value.
What is a Dollar Value Rule?
Simply put, using a dollar value rule for personal purchases means that you are making your decision on whether to make a purchase based on a minimum anticipated value. For instance, my general rule for general entertainment purposes (Netflix, Amazon purchases, etc.) is that must get one hour of use for every one dollar I spend to get my money’s worth. In reality, it looks like this:
In order to justify my Netflix subscription of $16 per month, I make sure that I am watching at least 16 hours of Netflix during that month.
When purchasing a new desk chair for $200, I do my research to ensure that I get at least 200 hours of use out of it.
These strategies work for me in these areas, but it’s important to adapt your strategy to the context of the purchase as well as your own personal circumstances. For instance:
For clothing purchases, instead of tracking the value based on the number of hours used, use the number of times the article of clothing is worn. This is a stricter guideline that makes sense to be used with longer-term purchases.
Because I place a greater importance on my health, I will allow myself to spend more on a personal trainer or exercise coach once per month because I know that those services provide a valuable benefit to me.
For some people, a night of drinking with friends can eat up an entire monthly budget, and for others, a Netflix subscription and a gym membership can keep them occupied for the entire month. By looking at yourself and your budget, you should be able to determine what activities give the most value and what mix of spending works best for an entire monthly budget. Once you start creating and applying rules like the ones that we have listed above, you will be surprised at how much value you can get out of your entertainment budget.
What is your dollar value rule? Do you use any other strategies to help guide the spending within your budget? Let us know in the comment section and we will see you next time!