Budgeting Rewards


Creating a budget is hard work, as I and others have discussed elsewhere. Yet having a strong, accurate budget is an essential step towards financial freedom. Once the budget is created, then you need the determination and commitment to keep that budget, which can be difficult given the temptations of the world we live in. One of the ways to keep you on track is to include rewards in your budget.

Types of Rewards

While there are almost an infinite number of things that can be rewards, depending on your personality, there are really two types of rewards when it comes to maintaining your budget.

The first type of reward is what I call a maintenance reward. This reward is what you give yourself periodically for simply holding to your budget. The military gives medals for duration of service as well as heroism; a maintenance reward is like that, something you give yourself simply because you have been doing a good job. Maintenance awards should not be large, but (of course) enjoyable. Taking your spouse out to dinner is a good example of a maintenance award, or maybe a weekend camping trip (which works very well for me). Include a small savings plan in your budget for this type of reward, say about $ 50 a month or so. I would suggest you isolate this money; don’t put it in your savings accounts, investment accounts. Instead, just get the cash and put it someplace you can look at it often. This allows you to fantasize a little about the reward, which increases your pleasure. And rather than rewarding yourself every month, make this significant by doing every 3 to 6 months.

The second reward is a milestone award. This is something you give yourself when you reach a specific target, suggest as paying off a big debt, or reaching a certain income. Treat this as a bonus. Put an item in your entertainment category, possibly, to pay for this reward. If you are using the envelope technique to manage your spending, you could put any left over money into this fund. I would suggest opening a second savings account, like a Christmas fund account, to hold the money for this reward. Then, when you reach the milestone, buy that big new television, go on that cruise you’ve been wanting to do, reward yourself.


You might be asking yourself, why should I do this? Isn’t the reward of financial freedom big enough to work? Why spend the extra money?

Quite frankly, no, the ultimate goal of financial freedom is not enough. A financial freedom plan takes years, typically, to accomplish. Unless you are incredibly strong willed, you cannot keep going years without some payoff; I know I can’t. So, give yourself some incentive to reach the milestones. Take time to indulge yourself, a little, before you get back into the fight. Again, to use the military as an example, combat soldiers get leave to go to town and have a good time. They do this because it works, it keeps the soldiers motivated. Don’t treat yourself like a monk, but as a soldier. You’ll get better long term results.