Intermediate Personal Finance Concept: The Slush Fund
I know a lot of people are struggling to find employment (or keep it), establish a budget, pay off debt, amass an emergency fund and put aside money for retirement. I also know how challenging this is because I’ve been there and done that. Today I’d like to write about a concept that might be of interest to those who have accomplished most of these basic planning goals or as further incentive to those en route. There is enormous value in building a solid financial basis and it is rewarding in its own right on so many levels. Much has been written on this site alone about the psychological and physical health benefits of taking control of your financial life, establishing goals and achieving them.
But then what? How do you maintain a solid financial base and start to incorporate perhaps a bit more fun? We are very fortunate to have met our basic financial goals (though continued income is an ongoing challenge) and we’ve been experimenting with a concept we call the “slush fund”. Our income is variable while our budget is fairly strict and represents, for the most part, “needs” versus “wants”. At the end of each month, we total up income and subtract actual expenses. The remainder (hopefully positive) is “deposited” in our slush fund. For us, this is not actually a separate account though it could be. Rather it lives in our checking account. Out of the slush fund comes an allocation for a trip we have planned in Summer 2011 but otherwise it just sits there as a tantalizing fun pot.
In our budget, travel is a “want” so we will leave some slush fund dollars for shorter trips. We also dip into it for little splurges that are not part of our budget. After years of working to achieve the basic goals, we have realized that we don’t need to spend a lot of money to be happy and we are frankly out of the habit of spending. We’ve talked about making another contribution to Kiva and we also use the fund to make spot donations to various other causes we feel strongly about. There will be other goals. That’s for sure. And its nice to have a bit of a head start on funding them.
Photo credit: stock.xchng.