The Importance of a “Fuck Off” Fund
Two years ago, a story written on thebillfold.com went viral on the internet (at least in the world of personal finance). This is around the time I started reading seriously about this stuff and remember it really resonating with me. I had just graduated from grad school where, despite having taken other financial courses in college, the power of compound interest really sank in. After taking a corporate finance class, I started paying attention to investing and saving for retirement in a more active way.
I can probably write about this in a post on its own, but my decisions around what school to go to largely stemmed from never wanting to feel like the girl in this story. This short and easy read is especially perfect for anyone in their early 20s. It can also be helpful for anyone near the start of getting their finances in order.
#MeToo and Financial Inequality
Although it’s closer to the far end of the worst that can happen, it’s not hard to relate to this as a possibility even if you’ve been fortunate to avoid similar circumstances. Especially these days when more and more people publicly identify themselves with the #MeToo movement, it’s easy to see how abuse can emerge from a bad relationship between power and money.
Right now, 1% of Americans control 38.6% of all the country’s wealth–an alarming number! That means 1% own almost twice as much as the “bottom 90%” combined. But statistics like these are shared all over the place with doom-like headlines over our growing inequality. Those headlines may get your attention enough to read for a bit, but seem too grand scale to tackle as an individual particularly if you yourself are struggling with your own finances. How can you deal with the country’s financial problems when you’re trying to get started with yours?
The Fuck Off Fund is, in essence, a motivating name for your emergency savings account. It’s the extra money you put away to cover unexpected expenses like your car breaking down randomly. I like to view it as the money that gives you power. Power to continue your life as normal when you’re faced with a payment you didn’t see coming, power to say “yes!” to taking a once-in-a-lifetime opportunity because money isn’t holding you back, and power to say “fuck off” to someone who’s treating you badly, or worse, abusing you.
I hope that for most people, this fund is what kickstarts their financial empowerment and that they never have to use it in a situation as worrying as The Billfold story. The truth is both women and men can find themselves in a manageable place one day and struggle with debt the next; this is not exclusive to one gender. But if reading #MeToo stories has shown me anything, it’s how having less power has been skewed against women. We can’t tackle society’s big issues all at once, but we’re also not helpless in making small steps toward progress.
How to Get Started
In my previous post, Living and Finishing Rich, I wrote about what financial-guru David Bach and Marie Forleo discussed as actionable steps to begin getting your financial life together. Most financial advice recommends you save at least 10-20% of your (after-tax) salary toward building a solid emergency fund. If you have no savings at all, building your emergency account should take priority over all other financial goals. This will allow you to take care of emergencies with back-up cash rather than needing to rely solely on credit and taking on debt.
To get started, you should aim at building a month’s worth of expenses, then work your way up to 3 months, 6 months, and some advice even says an ideal of 9 months to a year. After the Great Recession, the number of months to aim for increased as people found themselves unemployed for longer than their savings covered. The number you choose to aim for is personal and only you can truly come up with a specific number; factors to think about include what you’re living situation is like, whether you have dependents to take care of, and the job market for your field. Right now, the economy is on a bull run (doing well) and jobs may be more plentiful than during a recession.
In general, working your way up to at least 3-6 months worth of expenses gives you room to get back on your feet after illness, loss of employment, or other of life’s randomness. Additional savings can be used toward beginning to invest. The important thing to note is that emergency savings refer to expenses, not income.
Now, 10-20% can be no problem or a lot of money depending on your situation. You can make $35k with little expenses and have no difficulty saving $3,500. Likewise, you can earn $100,000 with high expenses and struggle to come up with $10,000. Arguably most people would prefer to be in the high earning category. It’s easy to connect making 6-figures with financial security, but it’s also easy to fall into judgment when thinking with assumptions. The underlying principles are more important than the numbers to start off with anyway. What matters is where you’re at and where you want to be.
If saving 10% does not seem like an attainable goal right now, start with something that is. Maybe it’s 9%, maybe its 1%. Maybe it’s an amount like $25 a week. You can manually and physically save that money in a jar if that works for you, but automatically having a percentage go to a savings account may be better–out of sight, out of mind. If you’re a young recent-grad with an entry-level salary, avoid lifestyle inflation by driving around your college car for a few more years or packing your lunch most days instead of eating out.
Being smart with money now can help you as you earn more later. The millennial generation faces an average of about $30,000 of student loan debt per person. With schools still largely not offering much in personal finance education, you may be in your late 20s or older realizing that something has to change. Start putting away whatever you can here and there. If you’re an older millennial or another generation altogether, all hope is not lost. Again, what matter is where you’re at. That’s the only place you can start.
Think about the story you’re building for yourself. If you keep up your current financial habits, where will you end up?