You know you need an emergency fund. Personal finance bloggers like me are always writing about how important it is to be prepared for a rainy day. But what about a “sunny” day? Shouldn’t you be ready for that as well? If you want to be prepared for entertainment and travel, you can build a “fun” fund. Such a fund is about more than just saving up for your next vacation, or large purchase. It’s about creating a fund that you can turn to when you feel like celebrating a little, or getting away.
You don’t have to be saving for a specific purpose in order to start building a fun fund. After all, your emergency fund isn’t made especially to cover the cost of a specific emergency. Your fun fund doesn’t need to be just for a specific purchase (although you can start one to pay for a specific hobby or monthly night out). Instead, it can be built up so that you can enjoy entertainment and travel regularly.
There are a couple of ways you can go about building your fun fund.
One way is to build it up as you would an emergency fund. Set aside a certain amount of money each month. Put it in a high yield savings account, or start a CD ladder to provide you with interest earnings that can add to your fund. Eventually, you will build up enough that you can draw on your fund for unexpected entertainment expenses, or even for travel.
Another option is to build your fun fund with the help of income investments. Dividend stocks have received a great deal of attention lately because of the way they have the potential to provide regular income, on top of the potential gains in share price. It is also possible to include income investments such as bonds and P2P loans in an income portfolio. This income portfolio can help fund trips, hobbies, entertainment purchases and more.
You can add the income payments to a high yield account, or you can reinvest them if you are trying to build your portfolio up a little bit faster. Realize that building an income portfolio requires time and persistence to build. You might not be able to see a large enough revenue stream to do a lot with with your income fund for a while, but you can get a solid start on it, and begin using the income for fun.
Once you have built up your fund, you can begin using the money for fun, whether it’s buying a new video game, or for spending money on a trip. With a more traditional savings account, you can wait until you amass enough to do one or two things. If you decide to use the income portfolio, you will need to wait until your holdings are large enough to provide income for different activities. However, it is possible to build up your holdings so that you receive a sufficient income to regular entertainment activities. Even two or three hundred dollars a month can be helpful, if you are looking to add to your fun fund, or just have extra spending money.
It’s important to make sure that you can afford to spend money on entertainment and travel, if those activities are of value to you. Many of us like to have fun, but it’s vital that you live within your means and avoid going into debt for entertainment and travel. Setting up a fun fund can help you enjoy the life you want, without breaking your budget.
Photo via Wikimedia Commons
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I'm just an average mom, trying to live a frugal life and get out of debt. I write about things that have (and haven't) worked to improve my family's financial situation. What works for me may or may not work for you, and you should always consult a financial advisor before making important financial decisions.
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