Guide to a Personal Slush Fund

By Kelly Boyer Sagert · August 08, 2023 · 9 minute read

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Guide to a Personal Slush Fund

You may have heard the term “slush fund” used to refer to a business setting aside money for miscellaneous and sometimes shadowy expenses.

However, a personal slush fund can be something quite purposeful and useful. It can serve as a pool of money that you can use for discretionary expenses. It can be an asset to your budget and might keep you from being tempted to dip into your emergency fund when you really shouldn’t.

Here, you’ll learn more about:

•   A slush fund’s definition

•   What a slush fund is for

•   The pros and cons of having a slush fund.

Including Slush Money in the Budget

A slush fund typically describes money set aside for miscellaneous purposes, often fun, discretionary expenses.
The word “slush” was created in the 17th century to describe half-melted snow. By the following century, “slush” was also used to describe the fat from meat that was boiled on a ship for sailors to eat.

When any leftover fat was sold at ports, the proceeds became the crew’s “slush fund.” When a military publication suggested that the money be used to buy books of the men’s choice, the phrase began to take on one of today’s meanings: as extra cash to spend on wants, rather than needs.

In modern business accounting, a slush fund is an account on a general ledger that doesn’t have a designated purpose and so is treated as a reserve of funds.

In its most negative meaning in the business world, a slush fund is kept off a company’s books for nefarious purposes. In the political arena, the term can be used to describe money, perhaps raised secretly, to be used for illegal activities.

When talking about personal finances, however, a slush fund is usually considered fun money: an account with some easily accessible cash you can use versus using your credit card or dipping into other funds.

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Including Slush Money in the Budget

So do you need a slush fund? It may make sense to have one.
First, it can help people to not overspend on wants. If someone uses (or has at least heard of) the 50/30/20 rule of budgeting, the slush money can be what goes into the 30% category.

For those who haven’t heard of this budgeting strategy, here’s an overview.

A person takes their after-tax income and divides it into three buckets:

•   50% to needs: This comprises rent or mortgage payments, car payments, groceries, insurance, student loan payments, minimum credit card payments, and so forth.

•   30% to wants: From eating out to buying a piece of jewelry or tickets to a game or concert, this is the discretionary spending category.

•   20% to savings: From emergency savings account to retirement account contributions, this money is for future spending, including but also going beyond rainy-day needs.

Here’s another reason why some people may want a slush fund: They are part of a couple and have a joint account for bill-paying and other practical purposes. Each partner may also want to have a slush account of their own, though. Those individual accounts can be used for your own personal spending (yoga classes, iced lattes, clothing, etc.) without your partner being privy to your purchases.

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Pros and Cons of Slush Funds

Slush funds have their pros and cons. First, consider the upsides:

•   Easily accessible

•   Allows for discretionary spending

•   Helps you avoid using high-interest credit cards

•   May help reduce money stress.

As for downsides, consider:

•   Could encourage you to overspend

•   Could incur banking fees on an additional account

•   Funds might be better used to pay down debt or to save

•   Money might grow more or faster if saved or invested.

Here is this information in chart form:

Pros of a Slush FundCons of a Slush Fund
Easily accessibleMight grow faster if saved/invested
Allows for discretionary spendingCould be used to pay down debt or invest instead
Avoids credit card usageCould lead to overspending
Could reduce money stressCould incur banking fees

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Slush Funds vs. Emergency Funds

You may wonder how a slush fund and emergency funds differ, as both are pools of money kept in reserve.

Consider this typical distinction:

•   A slush fund is usually a smaller amount of excess cash, perhaps similar to a cash cushion, that’s kept for discretionary spending, such as concert tickets, a last-minute weekend getaway, or other purchases.

•   An emergency is typically an account with three to six months’ worth of basic living expenses. It’s meant to be tapped when a true emergency crops up, such as paying bills during a period of job loss or covering an unexpected medical, dental, or car-repair bill.

Prioritizing What Matters

The way people organize how their money is spent is at the heart of budgeting (whether using the 50/30/20 or other budgeting method).

When their savings and spending are understood and tracked, people can adjust their budgets for even more effective prioritization.

How to set money goals? A review of your budget might indicate, for instance, that paying down high-interest credit card debt (and then paying it off) can free up money for more enjoyable pursuits.

Some people may focus on paying off student loan debt more quickly, again to free up cash in the monthly budget, while still others may prioritize building up their emergency savings account.

Each situation is unique. This trifecta might be a good place to start: a budget that meets your needs, helps you reach financial goals, and includes some room for discretionary spending.

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Reaching Savings Goals

If you want to create a slush fund just for fun, good for you. Enjoying hard-earned money may be a nice counterbalance to responsible bill-paying. To help you manage your cash to reach your money goals, here is a six-step process to consider:

1.    Identify goals: In this case, the goal is to set aside slush money, but priorities come into play. If, for example, an emergency fund is at the ready and retirement contributions are regularly being made, it may be time to focus on the slush fund. If one or both still need some attention, the slush fund may be third on the list for savings. Again, each situation is unique.

2.    Select a monthly deposit amount for the account: Perhaps there’s a specific goal (like creating a travel fund) or an amount can comfortably be budgeted. For a specific goal, such as a trip, it can help to figure out the time frame available to save and then divide the cost of a trip by the number of months available to save for it. That’s the monthly deposit amount required to reach the goal. For the second, saving as much as is reasonable to enjoy in the future can be key.

3.    Write down goals: Writing down what you want to achieve can boost the chances of reaching those goals. These jottings can be an ongoing reminder of what you want to achieve, keeping it front of mind. And because slush money is used for pleasurable purposes, it can be fun to write about plans.

4.    Monitor progress: By tracking daily spending habits and long-term savings habits, the process can be further refined. Some people like to rely on pen and paper, while others use an Excel spreadsheet or Google Docs. Still others use an app to track spending and set monthly budget targets. At the risk of sounding like a broken record (do people use that phrase anymore?), do what works best.

5.    Celebrate successes: For longer-term goals, savings fatigue can set it. To combat that, celebrate even the smallest of successes. Able to save $50 more this week than expected? Buy yourself a little treat (a quick massage or perhaps a bubble tea) to reward yourself for a job well done.

6.    Automate the process: Make the savings process easier by automating your finances. A certain dollar amount out of each paycheck can automatically be deposited into the savings account, or an automatic transfer can be set up from a checking account.

Recommended: How to Save Money From Your Salary

4 Tips to Help You Manage Your Slush Fund(s)

Here are a few ideas for accruing a slush fund:

1.    Be consistent. If you make a plan to save $10 or $25 or more per paycheck for a slush fund, keep up with it.

2.    Stash extra cash. If a financial windfall comes your way — a bonus, a tax refund — you may want to see how much can be earmarked as slush money.

3.    Bring in more money. Consider the benefits of a side hustle. Think of what hobbies can be turned into income earners and consider putting those extra dollars into the fund.

4.    Earn interest. Think about the best place to keep your slush account. You might choose to keep it in your usual checking account, a separate checking account, or a savings account. Shop around for the best interest rate so your money can earn money. Online banks vs. traditional banks tend to offer higher rates.

Opening a Savings Account for Your Slush Fund

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What is a slush fund used for?

Typically, a slush fund is used for discretionary spending on fun purchases. It is used for the wants, not the needs, in life.

How much should you have in a slush fund?

There is not a set amount you should have in a slush fund, unlike the case with an emergency fund. Rather, you should have enough to cover unplanned purchases or expenses, such as joining a yoga studio, buying a new suitcase, or going away for the weekend, instead of charging those costs.

What are the differences between a slush fund and a petty cash fund?

In the business world, a petty cash fund is kept for incidentals, such as catering a breakfast for a client, running out to get an office supply you ran out of, and the like. A slush fund is for other miscellaneous expenses that can crop up. Perhaps you’re an entrepreneur and have to hop on a plane to pitch a new client: The price of the ticket might come out of your slush fund.

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