Financial advice: How much should we spend on our hobbies

I was working with a couple recently who were having cash flow difficulties and the culprit wasn’t what you might have expected i.e. high debt repayments or the amount spent on food or drinks or shopping etc. it was in fact the amount they were spending on hobbies.

He was an avid sailor and she loved the gym and between both, the costs were accounting for about 15% of their net monthly income which was very high. And it wasn’t just the cost of owning a boat or going to the gym either, it was those ancillary costs i.e. cost of mooring their boat, it’s upkeep, gym classes, gym clothes etc. that were also adding to their outlay.
And they never would have thought their hobbies were the problem area but when they ran the cold hard numbers, it was. I guess their perception of what they spent and what they were actually spending were two different things.
Anyway, the general accepted rule of thumb percentage that is deemed appropriate to spend on hobbies is 5% of your net monthly income but the individual amount will really depend on a person’s circumstances, it could be much lower or indeed higher.

In my experience it is often that hobbies are the cause of blockage when it comes to monthly cash flow but the encounter I had with this couple brought back a memory to me regarding a gentleman I met a number of years ago.

He too reached out for help, because his finances weren’t in a great place. At the time he was 35 and I remember him telling me how ashamed he was to say he had €0.59 cent to his name and that was it, nothing else.

He was single, in full time employment and was earning about €45,000 per year so where was all his money going each month? He had no mortgage, had a small personal loan and his rent was reasonably low, so what was his problem?
And it was actually threefold.

First off, he admitted to being addicted to buying things on the internet. He said he was ebaying constantly and just couldn’t stop himself and the problem may not have been so bad if what he was buying wasn’t so expensive which was the second problem – he was buying cars.

He would buy a used car and would then spend a lot of money buying parts for it or modifying it or re-spraying it. He could tell me exactly how much he spent on a particular car i.e. how much it cost, what the parts were used for etc. so he was very methodical and very organised when it came to his cars.

He told me about one car he bought, a 2001 Golf, and my jaw dropped when he told me that over a 5 year period, he spent €55,000 on this car.

I don’t know much about cars and I thought I had misheard him, because I said, you spent €5,000 doing up this car?
No, he said he spent €55,000.

I asked him how he could spend so much, and very quickly and without hesitation he started listing off what this part cost, what that part cost, what modifications he carried out etc. and I stopped him after about 30 seconds because there was no doubt he did spend that amount of money.

I asked him what the cars was worth now and he said, about €9,200. He tried to rationalise with me why he spent all of that money and suggested that he was doing it as a long term investment and that one day, he would get back what he put into it, and some.

And knowing absolutely nothing about cars, who was I to doubt him. I asked him where the golf was now and that was his third problem because he was a bit of a hoarder and the car was at his parents’ house, out in their backyard alongside the garage where he had hundreds of car parts.

He admitted the golf hadn’t been started in a couple of years and it actually needed a bit more work because it had been sitting there for quite a while which struck me that if he thought this car was an investment, he’d surely look after it better.

Anyway, it was sitting alongside a 1999 Volvo and a 1996 a Ford Taurus Ghia which he said he bought for €10,000 about four years ago. Not as much work needed on this one given the original price but he bought it from Spain and it had to be shipped to Ireland and that cost him €1,500.

Shockingly he had spent about €155,000 to date on his hobby and alarmingly at one stage he said he had €35,000 owing on three credit cards. So, what I think started out as a genuine hobby, spiralled out of control and his hobby had now turned into an addiction which was having a major impact on his finances. .

From my perspective it was easy to give him financial advice about how he could improve his finances going forward, and in fairness it anyone really would be able to tell him what I said, the blockage regarding his finances was a very obvious one.
This gentleman needed much more important help and intervention than financial advice. He needed addiction counselling which was something I was not qualified to give him, but I think reaching out to me for indirect help in the first place was his way of trying to do something about it.

His story and the couple I recently encountered got me thinking about how people’s hobbies can get them into financial difficulty and how much should we be spending on them?

Do we even know and do we budget for the cost of them every year? Or do we leave it intentionally vague because we are worried about what we or our partner will find out? I know of one person who does.

Her children are into dancing, so I guess her hobby is theirs as well but the cost of buying a new dress can be anything from €100 to €1,000 and then they travel over to the UK three or four times’ a year for competitions and when you factor in this cost and food and accommodation it’s probably costing her c. €5,000 per year.

Their family household income is c. €60,000 so nearly 8% of their total income is going on this hobby. Sadly, they spend more on this each year than they put into their pensions. Her husband doesn’t know the true cost though, because (a) he doesn’t like their hobby and (b) he would go mad if he knew they were spending that much on dresses in particular.

Another person I know pays golf club membership of €1,800 per year, buys the odd club every year and other miscellaneous costs associated with club brings his annual total to c. €2,200. But he plays twice a year, meaning each round costs him €1,100!

I don’t want to be a killjoy here, everyone needs to have a hobby, and if you have one that you love and you are passionate about then great, spend as much as you can. Just as long as it’s not detrimental to your current or future financial situation.
And there shouldn’t be a set amount or % of your income that you need to budget for either as long as you pay your mortgage/ and or rent and utilities on time and you invest for your future needs, and if 1% is left over, or 10% then great, spend as much as you can on the hobby you love and get enjoyment from.

I think as long as you have a positive surplus in your account each month and you’re not getting into debt to feed your hobby habit and you are taking care of your long and short term savings, then spending money on a hobby is an important part of all our lives because what purpose has money if it’s not used for us to enjoy it.

Just know how much it’s costing you that’s all, it might be much more than you realise.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at liam@harmonics.ie or www.harmonics.ie