6 Tips for Growing And Prioritizing Your Family ‘Fun Fund’

Emergency funds, retirement funds, college funds: It seems like there is no shortage of “funds” to which a woman should be contributing in order to secure her financial future. And, let’s be honest, these aren’t necessarily the sexiest of money matters. (When was the last time you whispered sweet nothings about your 401(k) rate of return to your beloved?!) But if these three accounts make up the entirety of your savings strategy, you definitely are missing out on some fun you could be having—namely, a family “fun fund.”

Savings aren't simply about preparing for a rainy day or retirement — it’s also about making goals and dreams a reality along the way. And that’s where your family fun fund comes in. Whether your kids are dying to meet Mickey and Minnie at Disneyland or you want to add a labradoodle sidekick to your growing family, a fun fund is a great way to go about it. We teamed up with Schwab to learn how to get that fund growing, with advice from money guru Carrie Schwab-Pomerantz, CFP®. Make sure to visit Carrie's column, Ask Carrie, for this and other vital money questions that you and your family may have.

1. Get your other accounts in order first

Before you begin planting the seeds of your family fun fund, make sure you’ve properly nurtured and tended to your other savings accounts first. That means having three to six months’ worth of expenses saved up in an emergency fund, not missing out on any match to your 401(k) or other retirement fund, and regularly setting aside money in your children’s 529 plans or other education funds. Once you’ve ticked those boxes, then you can start setting money aside for that RV you’ve been picturing yourself behind the wheel of.

2. Pick the right type of savings account

Next, you’ll want to consider where to stash your cash. Not all savings instruments are created equal, says Carrie, and the type of account you choose will depend on a few things.

“There are three major variables to consider any time you invest money: your natural ability to deal with risk, the amount of risk you can afford to take, and the amount of time until you will need your money,” says Carrie. “All three are important considerations. Your goal is to find the best balance between liquidity (how quickly and conveniently you can access your cash), safety (the return of your money), and yield (the return on your money).”

Really think about your goal, especially the timeline, and what makes the most sense. If, for instance, you intend to pull the cash out in the next year or two (for that new flat screen TV in the family room), you’ll probably want to use a savings account or a money market deposit account (generally, a higher yielding account) since you’ll be able to access your money quickly and without penalty. If, on the other hand, you plan to set money aside for, let's say, three to five years (for that European vacay you want to take when the kids are old enough to enjoy it), you may want to consider a short-term certificate of deposit (CD). Typically, you’ll get a higher yield the longer the term to maturity (you just have to watch out for penalties for early withdrawal).

A short term bond mutual fund or conservative exchange traded fund (ETF) could also fit the bill. These investments may offer higher yields and increased flexibility without early withdrawal penalties, but unlike a CD, neither principal or interest is guaranteed and you could lose money.

3. Budget for your new goal

How much money you’re able to set aside each month will depend on your budget. As with any life change — marriage, new baby, buying a house — you’ll want to crunch the numbers to see what makes sense for your family. (You don’t want to go into debt saving for a backyard jungle gym!)

If you don’t already have a budget, you’ll definitely want to put one in place. The more your family grows, the more imperative it will be.

“Take a look at what you need vs. what you want,” says Carrie. “Start by adding up essentials like rent, transportation, groceries, utilities, student loan payments, car payments, etc. Don't just guess — write them down or use an online budgeting tool. Now subtract this amount from your take-home pay. What you have left is what you can direct toward things you want.”

4. Get your kids in on the action

If your children are old enough to understand basic money principles, having them contribute to the family fun fund is a great way to put those principles into practice. Perhaps they contribute a portion of their allowance each month to the fund, or maybe you create a fun fund of their own to accrue spending money for when you do finally take that trip to your favorite theme park. However you go about it, talk them through what it means to save money and what the impact will be in the future.

“Tailor your conversations to your kids' individual needs,” says Carrie. “This may sound obvious, but the kinds of conversations you have with your kids should depend on their age, developmental level, and personality. Some kids like details, others respond better to ideas or general thoughts ... You know your kids better than anyone else, so work with that knowledge.”

5. Reassess your savings periodically

If you’re putting money in your fun fund for a bigger or more longterm goal, you’ll want to sit down with your budget periodically (once a year, perhaps) to ensure you’re socking away the ideal amount. For instance, if you or your partner get a promotion in the coming year, you may be able to bump up the amount you put in your fun fund each month and reach your goal even faster. Conversely, if you hit a bit of a financial rough patch, you may want to decrease your contribution to temporarily divert funds to paying bills and purchasing household essentials. Monitoring your progress will keep you on track and help you stay focused.

6. Don’t forget to have fun!

Last, but certainly not least: When you’ve finally reached your fun fund goal, take a moment to celebrate. Enjoy it. That’s what it’s there for! Remember, money is just a tool and a means to reach your goals. Whether that goal achieving financial security when you’re 40 or being able to deliver on a financial wish for your four-year-old. Don't feel guilty about having a good time — you’ve earned it. (And your kids will mostly certainly thank you for that never-to-be-forgotten week at the most magical place on Earth).

This article is sponsored by Charles Schwab. Make sure to visit Ask Carrie for any and all money advice you might need. The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager.