According to the Bureau of Labor Statistics, the average American household spends almost $3,000 a year on entertainment costs, and people are putting even more money into their hobbies, growing as much as 17 percent in 2021 alone. Whether you’re interested in sports, gardening, remote control cars, video games, touring the country in an RV or private airplane, there’s plenty of reason to invest in the activities that you love. But, when does it become too much for the wallet to handle? As long as you’re not in a dire financial state, you should feel comfortable spending money on things that make you happy, but you don’t want to go bankrupt. Let’s examine just how much money you should spend on your hobbies so you can make a smart financial decision when the time comes to invest in yourself.
How Much Should You Spend On A Hobby?
Ultimately, how much you spend on a hobby will depend on your current financial state, including income and debts. However, there is a simple formula to determine the appropriate amount of take-home pay that can go toward your unique interests.
There are all kinds of money-saving formulas out there that promise to help you optimize your budget. One simple formula that applies to a hobbyist is known as 50/30/20, whereby your take-home pay is split into different categories. 50 percent of take-home pay for necessities, 30 percent for hobbies and frivolous expenses, and 20 percent for savings. You can also adjust the formula to better fit your financial situation, putting more money into one area and reducing spending in another.
This will ensure that you’re staying healthy financially, while not overspending on the equipment or activities that really beckon your wallet.
Steps To Take For Figuring Appropriate Hobby Expenses
Now that you have a simple formula to help you calculate how much money you can potentially spend on your hobbies, let’s take a look at ways to build a budget that will help you optimize your finances.
Assess Your Current Financial Situation
The first step to take in determining how much money you can spend on your hobbies, is to assess your current financial situation. Answer some of the following questions:
- How much money do you have in savings? A short-term emergency fund? A large nest egg for retirement? This is a matter of personal goals, but spending cash on hobbies may slow down your progress toward reaching certain milestones like buying a house, car, starting a 401K or other investment account. Plus, you don’t want to be left out in the cold if you need money in a pinch.
- What are your current debts? Any student loans, mortgage payments, late credit card payments will only cost you more the longer you have to pay interest. Paying these off will leave you in a more comfortable position when investing in a hobby.
- What is your take-home pay after taxes? Even if you have little in savings and some form of debt, if you make enough you may not have to worry about incurring little expenses when it comes to your hobby. Other benefits like health care, retirement investments or insurance can help reduce your monthly costs so you can put more toward your favorite activities.
Build A Budget
Second, you need to build a detailed budget around your income and expenses. This will give you a solid amount where you can feel comfortable spending on your interests.
- Find all of your income sources: From your job to side hustles and other ways you make money. Refer to last year’s tax returns for a detailed view into your finances.
- Make a list of your monthly expenses: This will include fixed costs, like your rent or mortgage, as well as variable costs, like your energy or water bill which fluctuate in price.
- Subtract the total number of expenses from monthly income: The number that comes out will determine how much you can devote to saving vs. spending.
Make A Plan To Reach Your Goals
Consider any lifestyle changes you may need to make in order to get a monthly budget surplus. Determine what your goals with this surplus will be – it could be an increase in savings contributions, but a better way to spend it might be on that new set of golf club you’ve had your eye on, obtaining a pilot license and flying the world, founding a car club or any other hobby you want to try. After all, hobbies are beneficial to your well-being, mental health and even physical health, so it’s a smart investment.
How To Save Money On Hobbies
Of course, not everyone has disposable income to freely spend on hobbies, and many times, you may not need to spend a ton anyway. If you’re new to a hobby, there’s no need to spend a ton of money on a piece of equipment you may not get enough use out of. There are a number of ways to bring down your expenses when it comes to funding your hobby:
- Purchase second-hand equipment: Surf deals on the internet, visit second-hand stores or join online forums where people buy/sell/trade gear to find better deals.
- Donate to receive access to your hobby: Sometimes, you can donate your time or skills to an organization and they’ll return the favor with free experiences. For example, skydiving specialists can receive free jumps by volunteering their time for tandem jumps.
- Turn your hobby into a full-time job: If your hobby is your passion, consider a career switch, starting your own business or trying out a side hustle. You may be able to improve your career and your life.
- Consider taxes: Understand the tax implications of making money from your hobby. If you’re lucky enough to turn your passion into a revenue-generating business, you’ll want to talk to a tax professional about proper income reporting.
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