I have a friend who is extremely conscious of what he eats, exercises regularly etc. But on a weekend, he’s out guzzling beer with friends.

He says, he plans for that indulgence and the opportunity to relax and have fun with friends by eating right the rest of the week and exercising extra on Saturday. This got me thinking.

We write a lot of articles about how to plan your spending – but most of these are about necessary spending. By ignoring what gives us pleasure and forcing ourselves to ‘sacrifice’ we may not be helping our long term plan.

Why you need a cheat day when planning your finances

Just like there is a cheat day in every effective diet and workout plan, you need to cater for indulgences in your financial planning.

All of us have only so much impulse control and we can control spends just to a point where it doesn’t cause pain.

Not catering for these spends is why a lot of financial problems arise and why people end up with avoidable debt. By not giving yourself a break every now and then you may end up doing binge spends.

Prioritize your spends, rather than just curtailing them

The people who end up doing a good job with their finances, tend to use priorities a lot in their planning. They prioritize which investments deserve most of their money and also which spends they should go ahead with and which they shouldn’t.

Deciding the things you really love doing and are non-negotiable for your personal happiness (within reason) will help you prioritize your spending to get the most out of it. For example if you absolutely love watching movies, then you should add it to your list of spends and plan for it.

While we would love to do everything we love, a limited salary also means making compromises. Prioritize amongst the things you love doing and allocate a portion of your earnings to that.

Planning for happiness with an indulgence fund

A good way to make sure that you don’t end up feeling guilty because you spent on just feeling good is to simply plan for it. Just as we have emergency funds for unforeseen circumstances, it makes sense to have a fund to cater for your indulgences.

This fund can vary in size depending on your income. Here’s a simple way you can calculate and create your indulgence fund.

I discussed this with a few friends and broadly we thought this break up would work for us

Split the take home salary into 4 parts

– 15% for my long term savings through Scripbox

– 25% for rent

– 45-50% for living expenses

– 10-15% for indulgence

You can find your own balance depending on what your essentials and indulgences are. You should also figure out if you can actually afford to indulge. I didn’t realize this until later, so don’t make my mistakes. Do tell us in comments what you figure out.