Discretionary Income

You call it "play money" or "fun money," and financial planners call it "discretionary income." It's the money you have left over after all of the bills and taxes are paid, money you can use for other goals-including fun. As you know, it feels good to buy yourself a little treat, especially after a hard day, or to celebrate a personal milestone or victory. Lost 10 pounds? Buy yourself a new T-shirt in a smaller size. Now that feels good.

If it seems irresponsible to cheer purchases made "to feel good," that's understandable in our current financial climate, when budgets are stretched so tightly in most families. It can be challenging to meet the monthly bills, and credit cards need to be paid down, not built up with more debt.

Even the Bureau of Labor Statistics seems to have turned away from discretionary income, no longer tracking it as of 2011. It just got too hard for the agency to agree on what qualifies as a discretionary buy. A morning latte? A $500 leather jacket? Items that people choose to buy with their "play money" vary tremendously.

According to a recent New York Times article, when people shop for fun, they're buying more shoes, handbags and premixed cocktails. Cheesecake sales are up by 22 percent. Clearly, we want to look good, imbibe, and snack on creamy goodness when we treat ourselves.


When Splurges Are Smart
If your monthly money is always going only to bills and paying down debt, it's easy to slide into a less than stellar mood. The occasional "fun" purchase lifts the spirits, and physiologists say that a portion of the brain that registers pleasure lights up in brain scans when the subject either buys an item or thinks about buying an item. A happy hormone launches when we buy ourselves a little something nice. When we never can do so, depression-and all of its physiological symptoms, such as headaches, lethargy, sleep, and sex problems -can set in, especially when one partner in a relationship has less spending money than the other partner.

Buying yourself a little something nice can be good for your state of mind, which can activate hormones that give you more energy, thus leading you to exercise more, perform better at work, and have happier relationships, an active social life and other elements of well-being. Of course, this only applies when it's an occasional treat; compulsive shopping to lift your spirits creates a tidal wave of negative consequences to be avoided at all costs.

Another smart benefit to using some "play money" on yourself: Buying a $15 bangle, a pair of earrings or a body-slimmer delivers a self-esteem boost when you feel great in what you're wearing to work, on dates, to special events and more. A simple and inexpensive "fun money" buy can give new life to your existing wardrobe, making last year's little black dress look like a $200 new purchase. You go to your event, or on a job interview, with a spring in your step, not feeling deprived and down because you have nothing nice to wear.

"Fun money" lets you go get a stylish haircut, also boosting your self-esteem, or buy a new perfume that works its aromatherapy magic on your energy levels and relaxes you.

Looking outside of personal appearance, "fun money" lets you socialize without guilt. You can join friends for dinner or drinks, rather than staying home to eat leftovers alone. Having an active social life is good for your state of mind, and nurturing your closest relationships adds a priceless dimension to your world. All because you allowed yourself to spend $40 on an evening with friends.

How To Budget for fun Money
Where you are in your life can play a big part in how much discretionary money you may spend. According to the U.S. Census Bureau, those younger than 25 have the greatest percentage of discretionary income-85 percent-because they may be living at home and spending less on food and utilities. In their 30s, people begin taking on mortgages and household expenses, reducing the money they can spend on treats. As they age, people spend their money on a range of essentials, culminating in the retirement-age sector's spending on health care.

No matter where you are in life, you can arrange your monthly budget to allow you, and your partner, a set amount for "play money." You might shift your priorities, scaling back to a slightly lower tier of cable channels in order to free up an extra $100 a month. Or you might readjust your errands schedule so that you're running them twice a week instead of four times a week, saving enough on gas money to give you a manicure fund each month.

In a shared household, discuss your "play money" plan with your partner so that neither of you feels as if you're paying all the bills while the other partner gets to have more fun with his or her money.