If you’re familiar with crafting budgets, then you have probably heard the term “f-you money”. I’ve seen the term described in one of two ways:

  • a SMALL pool of funds allocated for those types of monthly or quarterly purchases that would normally leave us feeling guilty.
  • a LARGE fund that can be used to retire early, take an extended sabbatical, or give us the freedom to leave a job we hate for a better position for lower pay

This post will focus on the smaller pool of f-you money as these purchases occur frequently and might occur as often as monthly.

For the best summary on the large fund, that I’ve ever come across, check out this awesome article from Jim Collins on Why You Need F-You Money. http://jlcollinsnh.com/2011/06/06/why-you-need-f-you-money/

F-you money, in the simplest terms, is money you can use to do whatever you want.

If we’re struggling to pay off our utility or grocery bills and then find ourselves closing out a $100 bar tab, then we probably should focus on those bills.

But if we’re aiming to put an extra $6,700 away this year to fund our two HSA accounts, then f-you money might be a $60 bottle of scotch we buy to celebrate. My girlfriend and I love all forms of whiskey so we can’t think of a greater way to use our f-you money category.

When used proactively, that is, when we decide weeks or months ahead of time that we’ll make that large purchase, then f-you money can HELP us achieve financial freedom by giving us a strong enough reward for hitting our financial goal.

By coming face to face with the realization that we do make unwise purchases from time to time, then at least we can begin planning around it.

To plan properly for using f-you money, start to save a small amount each month for that large purchase down the road. These savings aren’t considered ‘savings’ in the traditional sense, since we know we will spend it in the near future.

This approach also helps offset some stress that can be caused by diving too deep into frugality. I’m all for savings and eliminating unnecessary luxuries, but we don’t need to compromise on our happiness by dipping into austerity.

Allowing ourselves $100/month to live off of is not what would make us feel happy or financially secure.

As Oscar Wilde summed it up, “Everything in moderation, including moderation.”

From my own past, I had a terrible experience whenever I spent money outside of my budget. I would catch myself going out with friends and racking up a terribly high bar tab or I would join friends out to dinner and be embarrassed by how much the night would cost.

I enjoyed my time with friends or family, but the stress and guilt of careless spending became overbearing.

One approach my girlfriend and I take today is to aggressively save throughout the year, while still enjoying a big vacation once a year.

We know we can reach financial freedom sooner if we opt out of the vacation, but we also feel like we’d be less motivated to save throughout the year.

We often catch ourselves wanting to go out for a nice dinner instead of cooking on a saturday night, but we remind ourselves that we’re only X months away from a nice vacation. On vacation, we let loose a bit with our routine budget.

Do you splurge on any “unnecessary” items throughout the year? Do you allocate a small portion of f-you money towards larger purchases down the road?

Master Distiller

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