Everyone loves to spend money on their favorite entertainment vices. Some of us love to go to concerts, while others love to watch pay-per-view boxing matches.
No matter your particular entertainment vice, it must fall into an entertainment budget. Sadly, budgeting is not everyone’s cup of tea.
Today, I will make the case for why you should create an entertainment budget and how it can help change your life. After that discussion, I’ll move on to what you can do with the extra money. Let’s begin.
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To budget, or not to budget. My monthly entertainment budget is $750. My wife’s monthly entertainment budget is $750. However, we spend our budgets quite differently.
I use my budget to purchase Nintendo Switch video games, grab fast food, and purchase books on my Kindle. My wife uses hers for makeup and decor around the house. To be honest, I do not keep tabs on what my wife uses her money for because it’s her money.
Establishing separate entertainment budgets was a key reason why we were able to retire in our early 40s. When I retired from the Marine Corps, I projected a monthly pension of roughly $9,000.
We would have been too scared to retire if we didn’t know our household budget, mortgage payments, entertainment, and food budgets.
However, we had our budgets on lock for almost three years before retirement. We have been retired for over a year, and things couldn’t be better.
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Budgeting past inflation. One of the key drivers of building wealth is being able to combat inflation—something a budget helps you do.
As I said, I have kept the same $750 entertainment budget for the last few years. If things become more expensive, it means they are out of my price range.
Let’s say I purchase three Nintendo Switch games at $60 apiece every month. If the Nintendo Switch 2 arrives with games that cost $70 each, then I have a decision to make.
I need to cut $30 from somewhere else in my budget or perhaps only purchase two games a month. Or I could wait and buy all of my games on Black Friday.
The magic of creating an entertainment budget is that it will tell you what you can afford, not vice versa. Too often, people want to tell their budget what they want—instead of the opposite.
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Entertainment has become ridiculous. Entertaining ourselves has become far too expensive, which increases the importance of creating a budget.
Concert tickets, city fairs, second-hand stores, local bazaars, ice skating, zoos, and much more have become out of reach for many Americans.
However, we can’t let the cost of living crisis drive us into spending money against our own best interests. We must control our spending and gravitate to a cheaper way of life.
That’s why I love having an entertainment budget so much. If you only have $100 left for two weeks, you may take a walk in the park or go to the beach.
We can choose many free options over spending tons of money to go to the latest movie or sitting at Starbucks at $10 per cup.
You can organize your entertainment budget in any way you see fit. You could have a daily, weekly, or monthly budget or separate it into your favorite items such as movies, coffee, or shopping.
Ramit Sethi says it best: focus on the things you love and eliminate the things that bring you no value. If you’d rather spend $300 on coffee instead of shoes, create a budget that reflects this choice.
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People get into trouble when they want to drink coffee every day, go to the movies every week, and buy new shoes every month—it’s too much.
What do you do with the extra money? Let’s say your family brings in $10,000 monthly and allocates $8,000 to your various budgets.
Without an entertainment budget, the remaining $2,000 will fill a world of concerts, fairs, and movies. Let’s say you create a $1,000/month family entertainment budget, leaving you $1,000 in your account.
What should you do with the remaining $1,000? It’s a great time to learn how to trade options. I know it sounds unbelievable, but hear me out!
The magic of trading options is that you can earn substantial returns on your invested capital without taking any unknown risks. The keyword is “unknown.”
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Let’s say you save $5,000 in your options trading account over five months. With the right strategy, like trading long strangles (my favorite), you could earn $500 per month in options income.
You can keep growing your options trading account, invest the money into dividend-paying stocks, or spend the money on entertainment.
The true purpose of a budget. Something that rich people understand is the power of assets. Many of us left the house at age 18 without holding any assets to our name.
We believed that having a job was an asset—it’s not. Therefore, the goal of working a job isn’t to pay bills but to build a collection of assets.
Budgeting ensures that workers dedicate enough of their income to building a base of assets. Some assets include an options trading account, dividend stocks, real estate, businesses, and cryptocurrencies.
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As soon as I started collecting assets in 2019, my net worth and passive income grew exponentially. I paid off debt and started having multiple streams of income.
My net worth at age 43 is $800,000. I am almost a millionaire because I focus on budgeting and assets. It’s more important for me to spend $100 buying Verizon (VZ) stocks than buying a $100 pair of Crocs.
But investing doesn’t have to be a zero-sum game; you can invest and spend money on things you love. You just need a budget.
It may be difficult to limit your entertainment spending, mainly if you are used to having an extraordinary amount of money to entertain yourself. But trust me, the things that entertain me more are seeing my net worth and passive income increase year-over-year.
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Conclusion. It’s time to be honest with yourself. I had my come-to-reality moment in 2019 when I was $77,000 in debt. I said to myself that enough was enough.
I don’t miss spending tons of money on movies and games. I see my assets growing and love making money from them.
I also believe that spending less money on entertainment teaches our kids valuable lessons. My kids are learning to appreciate playing basketball, going to national parks, and walking on the beach.
The toughest budgets to nail down are your food and entertainment budgets. Once you have a grasp on these two budgets, your wealth-building journey can grow exponentially.
The best part is that, eventually, you can use the passive income from assets to do whatever you want. Your entertainment budget can begin to grow with the money you receive outside of your 9-5 job. That’s the true magic of budgeting. Good Luck!
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