Today the term refers to a fund that contains dollars set aside for wants—for spending freely as desired.
Before exploring that idea further, though, a history lesson.
The word “slush” was created in the 17th century to describe half-melted snow, according to www.phrases.org.uk. 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 the meat 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.
For our purposes though, let’s talk about a slush fund as fun money.
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 an account of their own, though.
Prioritizing What Matters
The way people organize how their money is spent, putting funds where they matter to them, is at the heart of budgeting (whether using the 50/30/20 or other budget method).
When their savings and spending are monitored, people can adjust their budgets for even more effective prioritization.
How to set money goals? A review of the budget can indicate, for some, 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.
Reaching Savings Goals
If you want to create a fund just for fun, good for you. Enjoying hard-earned money may be a nice counterbalance to responsible bill-paying. To help reach your savings goals, here is a six-step process to consider:
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.
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.
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.
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.
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? If planning a trip to the ocean, picture yourself lounging by the beach and imagine the refreshing fruity drinks that can be enjoyed with that extra deposit.
Automate the process: Make the savings process easier through automation. 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
A Few More Tips
First, consistency is key. So keep moving forward.
If a windfall comes your way— a bonus, a raise, an inheritance—you may want to see how much can be earmarked as slush money.
You might also consider launching a side hustle. Think of what hobbies can be turned into income earners and consider putting those extra dollars into the fund.
All business and no pleasure can sap a budgeter’s will to … budget. A slush fund, a term with fatty origins, can be a fun and meaty part of a savings plan.
You can track saving and spending with a SoFi Money® cash management account and create financial vaults for specific goals.
Giving a vault a name, whether Slush Money, Caribbean Vacation, Dream House, or Hair and Clothes Fund, may put a little fun into budgeting.
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