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.

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.

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 Fund	Cons of a Slush Fund
Easily accessible	Might grow faster if saved/invested
Allows for discretionary spending	Could be used to pay down debt or invest instead
Avoids credit card usage	Could lead to overspending
Could reduce money stress	Could incur banking fees

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.

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

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with up to 4.50% APY on SoFi Checking and Savings.

FAQ

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.

---

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.50% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.50% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 8/9/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet..

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOMN20125