Do You Need a Slush Fund? Four Reasons to Set Aside Some Fun Money

Earlier this month, I splurged on a luxury I have mulled over for years. I took a Nancy Noel angel print, signed and dated, and paid to have it framed professionally. I bought this print directly from the artist several years ago, and it’s my absolute favorite. But since I have never found a frame that fit its odd size, it has been stored in a closet ever since.

But this month I decided to treat myself. I had money set aside, and I finally found the perfect place to hang it. So, I packed up the print and took it to Hobby Lobby with a 50% off professional framing coupon in-hand. The entire ordeal cost me over $150, and I can pick it up in a few weeks.

But, you know what? I don’t feel bad at all. The money I used to pay was from my personal slush fund, which is made up of money my husband and I set aside for ourselves each month.

While we used to allocate $25 per month for fun money, we now set aside $100 per month for each of us. We don’t always spend it though, so we let it roll over month after month. And so far, having individual slush funds has worked out well for us and our marriage.

Four Reasons to Consider Keeping a Slush Fund

The purpose of a slush fund is simple; a slush fund is some amount of money you set aside regularly to be spent freely and without oversight. You can have this money transferred automatically to a high-interest savings account, or you can simply earmark it within your regular checking or savings account. In my home, we write our slush fund money into our zero-sum budget each month and mentally account for how its spent, but we don’t keep it in a separate account.

If you decide you could benefit from a slush fund, you can set it up however you want. Here are four reasons to consider a slush fund if you don’t have one already:

#1: A slush fund can help you live a little without going overboard.

It’s easy to focus so much on your financial goals that you forget to have any fun. This is especially true if you’re careening toward early retirement or trying desperately to pay down debt.

The benefit of a slush fund is that it can help you set clear boundaries while also getting to enjoy your hard-earned dollars. By setting aside some money to spend however you want, you can also ensure you never feel so deprived that you’re tempted to give up budgeting altogether.

And sometimes, it’s just nice to have some money that isn’t assigned to bills. I think my husband finds his slush fund particularly helpful. He’s not a natural spender, but he has found some things he’s wanted to splurge on over the years.

This past month, he spent around $50 on supplies for his guitar. The month before, he bought bats, balls, and supplies to get a neighborhood wiffle ball game going (yes, I’m serious). Sometimes he’ll spend his slush fund money on a new hat or shirt, and other times he won’t spend it all. But, no matter what, he can spend it if he wants with no questions asked.

#2: It’s unrealistic to think you’ll never spend money on ‘wants.’

Within the personal financial community, there’s an underlying push for deprivation that can be unhealthy for some people. The FIRE community (financial independence, retire early) is especially bad about promoting extreme behaviors with money that are unrealistic.

For example, I’ve seen articles about how you should never dine out or how you should go years without buying clothing. While there’s a small percentage of the population who is happy to “go without” their whole lives, most of us want a lifestyle that is much more balanced.

The reality is, you can reach your savings goals and still spend money on “wants.” You can retire early without living in a tiny home or eating ramen to save 75% of your income for years.

You can have a little bit of both worlds. You can live on less while also splurging for items or experiences you want some of the time. The key is making sure you’re not splurging all the time, but only when you really, really want something.

A slush fund provides you with a way to find that balance between your wants, your needs, and your goals. Once your savings goals are set up so you’re on the right track, you can set aside some bonus money for whatever you want without feeling bad.

Related: Why I’m Only Focusing On One Half of FIRE

#3: You can reward yourself for positive money behavior.

One reason I like using a slush fund is the simple fact that it rewards us for good money behavior. We’ve worked hard to pay off our home over the last few years while also saving for early retirement. It would be a shame to never reward ourselves for our dedication to these goals, or to feel so overly motivated that we felt guilty for a few basic purchases that have added happiness to our lives.

Starting a slush fund is also a smart way to reward yourself in moderation while paying down debt. You could set it up to save X amount of money for fun for each $1,000 you pay off, or you could set aside a set amount of money each month as you pay off your debts.

Whatever works for you is the path you should take. The point is, reward yourself for your hard work as you move closer to your goal ,and you may be more likely to see your plan through to the end.

#4: Slush funds can help couples avoid money arguments.

Finally, having separate slush funds is a smart way for couples who might be prone to disagreements over money to squash arguments before they begin. Since research has shown that money arguments are a predictor of divorce and decreased relationship satisfaction, a slush fund could even help to save your marriage.

Imagine you’re in a relationship with a lot of debt and money stress. Without individual slush funds, you might be more likely to argue when one spouse dines out with colleagues for lunch or buys a new shirt. With even a small slush fund for each of you, however, you’d both have the freedom to spend whatever amount you decided freely and without question.

The Bottom Line

If you can afford to have a little fun each month or simply want some money you can spend however you want, a slush fund is a smart option to consider. Not only will this type of fund help you create boundaries for your discretionary spending, but it might help you avoid arguments, too.

At the end of the day, slush funds work well for some people but not for others. If you think this type of fund could work for your family, open up a high interest savings account and give it a try. You have little to lose, but a whole lot of freedom to gain.

Holly Johnson is an award-winning personal finance writer and the author of Zero Down Your Debt. Johnson shares her obsession with frugality, budgeting, and travel at ClubThrifty.com.

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