Thoughtfully planning ways to fund fun is just as essential as being disciplined about diligently saving for retirement and emergencies. You can think of it as an investment in your mental health, your relationships and your overall quality of life. But for some, channeling money into bigger ticket discretionary purchases like vacations, concert and theater tickets, luxury items and even regular massages can feel, well, a bit naughty. Our experts say there’s no guilt necessary. Here are six ways to make fun happen.
1. High-yield savings accounts are the top recommendation by our financial advisors
This type of savings account typically requires a certain account balance and sometimes regular deposits to trigger an attractive interest rate that’s higher than regular savings accounts. However, some high-yield savings accounts don’t have any account balance minimums. “It’s a good idea to view your savings account as the place where all the money goes for the bigger purchases you’re planning for that year,” says Stephanie Hannan, Wealth Planner at Huntington.
Any money in a high-yield savings account can earn an annual percentage yield (APY) from around 3.3% on the lower end all the way up to 5%. So if you’re planning for a vacation in six months, you can park the earmarked money in your high-yield savings account until payment is due so that it earns interest until that time.
Advanced planning is really crucial here. Knowing your target amount makes it much more manageable to be intentional about setting those funds aside for your pre-determined purpose.
“A high-yield savings account is a great vehicle for a shorter-term savings goal where you are taking the money out of your regular cash flow and setting it aside for a specific purpose,” says Jessica Bole, Wealth Planner for Huntington. “You can label the account so you clearly signal what the money is for,” she continues. “That helps some of my clients so it doesn’t feel like such an expense when it’s time to use those funds. And it allows you to get a little extra growth on those dollars,” she continues. “Label your account Summer Vacation Fund to add a little fun to the idea of saving because you have a purpose for it.”
2. Treat bonuses like the icing on the discretionary cake
If you’re one of the lucky workers who consistently earns a yearly bonus, you can certainly loosely plan how you’ll use that “extra” money, including for vacations. Remember as well that you earned that bonus, and you can “very intentionally decide to spend your bonus on yourself,” says Hannan.
If your financial ducks are solidly in a row, it’s completely acceptable to use bonus money to fund fun. Just make sure your emergency savings are where they should be, and that you are on track with your retirement savings. If you have high-interest debt, then pay that off first before spending on extras. You may also want to balance spending on things like vacations with paying for home improvements or kids’ expenses.
Bole puts it this way: “Once you’ve taken care of your responsibilities and you’ve set aside some savings for future financial success, allow yourself to enjoy the reward.”
And remember, bonuses aren’t necessarily guaranteed. So don’t count your chickens before they’re hatched. If you aren’t sure that your bonus dreams will become a reality (just think of poor Clark Griswold’s pool), don’t pre-spend it. Instead, treat it like “surprise” income when it arrives. This includes budgeting for fun, like vacations. You’ll want to have a fun fund that isn’t dependent on bonus expectations. If you do get a bonus, then the money is icing on the cake.
3. Splitting the costs can save you money, or make splurges actually affordable
Does sharing a rented house with another family truly make a vacation more affordable? That’s a tricky calculation since you’ll need a bigger, more expensive property to accommodate a larger group. And when it comes to choosing travel partners wisely, it’s complicated.
Again, advanced planning and gaining consensus as a first step is key. “Before any plans are booked, establish the budget that everyone is comfortable spending, keeping in mind that not everyone earns or spends the same way. Set clear expectations in advance to avoid uncomfortable moments,” suggests Bole.
That includes being open and honest about exactly what you want. “You should have all those discussions way up front, like: ‘Hey, I need a king bed and my own bathroom wherever we’re going. The kids need x, y and z,’” says Hannan.
She recommends doing an assessment of low-end and high-end options. You can rule out one extreme, and settle on a realistic price range and book within that amount.
Sometimes, instead of “saving,” sharing costs can make a splurge that would be beyond the reach of either party on their own suddenly possible. For example, one of Hannan’s most memorable trips was to Rehoboth Beach, an iconic stretch along the Atlantic in Delaware (President Joe Biden owns a summer home there!). Hannan’s family vacationed there with another family, spending their time in a non-touristy rental house with a pool. While it was more than either family would typically spend, it was only possible because they combined their money to make it a reality. “Independently, you never could have enjoyed this beautiful home on the boardwalk next to the beach with its own pool. But we were able to as two families. It became affordable, and it’s still one of the favorite places that all of the kids have stayed together. They still talk about the house and the experience,” she recalls.
4. Think of credit card cash back rewards as a multi-year play
Since it can take years to accrue a significant amount of cash back money, this is not generally a reliable source for funding fun. Think about it this way: let’s be very generous and say that you are earning approximately 3% cash back across all your purchases (most people have a rate around 1.17%). It would take nearly 3.5 years to earn $2000.00. As anyone who’s recently planned a vacation knows, that amount doesn’t come even close to covering a week-long beach stay, for instance.
Instead, Hannan advises a very strategic approach when it comes to cash back. “Look for credit cards that offer significant cash back in categories aligned with where you spend,” she says. “For example, you could choose a card that gives 4% cash back on gas. Then use that card exclusively for gas purchases,” she shares. If you travel frequently, you might consider a credit card affiliated with your preferred airline. You may not earn enough miles to significantly defray travel costs, but you will get an upgraded experience and occasional “free” tickets.
From the perspective of funding fun, it may be best to view cash-back rewards as a long-term play. Let them accrue for multiple years, and plan to cash them in for really special celebrations, say a milestone birthday or anniversary trips.
5. Adopt an entrepreneur’s mindset to earn extra on the side
Entrepreneurs, business owners and consultants may be able to hustle up some extra quick cash through additional sales, promotions or booking additional clients. If that isn’t you, there’s still a mini side hustle via selling items you no longer want through services like PoshMark, eBay, Craig’s List or Facebook Marketplace.
These smaller cash infusions can be kept separately, earmarked for fun. “You can say, ‘yeah, I really want that,’ and you already have the money sitting there,” says Hannan. “You’re not dipping into your savings.”
Another hack to consider is diverting balances from payment apps like Venmo or PayPal straight to a savings account you’ve designated for fun money. It can be tempting to let cash sit there and accumulate before transferring to a bank, but that can leave the money vulnerable to account takeovers, scams and unauthorized access to your device.
Bole suggests capitalizing on your hobbies as a way to bring in extra cash. “If you enjoy spending your free time being creative, can you market what you make to earn a few extra dollars? Are you a gifted musician? Consider offering private lessons. If your side hustle doesn’t feel like work, you’re more likely to stick with it to help you achieve your goals.”
6. Don’t treat brokerage accounts like petty cash
If you have another source to fund fun, go with that first. Most financial advisors caution against selling stocks for fun money. “I don’t like to withdraw from investment accounts. I almost keep it in the back of my mind as a long-term play, something I’m growing. So I don’t even count that in my thought process for budgeting,” explains Hannan. “I don’t touch the taxable account because I don’t want to create unnecessary gains or losses unless it’s for the purpose of creating a net neutral tax,” she explains.
Unlike money from a high-yield savings account, for example, you have to pay taxes on what you take out of a brokerage account (because you are selling shares to gain the cash). And any money you take out now is a missed opportunity to grow for later. However, the taxes can be minimal on amounts under $10,000.00. So as long as you do understand how it works and the tradeoffs (it’s complicated), it can be a viable source of shorter-term fun money. This is especially true if you keep withdrawals minimal and keep adding money to the account instead of only debiting it.
“If you will be utilizing investment assets to fund your fun, it is imperative to understand that different types of accounts carry very different tax implications,” cautions Bole. “For assets held for one year or less, short term capital gains rates apply. For assets held over one year, long term capital gains rates apply,” she explains.
Bank on having fun
The bottom line is, you have options when it comes to deciding how to fund fun. The only real rule is to take it seriously and make a plan that works for you. And yes, paying for life’s “extras” absolutely is essential. You owe it to your mental health, your relationships and your overall sense of contentment. Because living well is serious business.
