A slush fund is a savings account with at least three to six months’ worth of living expenses. It is a hedge against major unexpected expenses, such as temporary unemployment, large medical bills, or expensive car repairs. Check out our slush fund calculator to see how much you should save.
Financial experts recommend setting up a slush fund only after you have a well-established emergency fund. Once you save your emergency fund, it is time to progress up the financial security ladder to the slush fund. From there, you can figure out what level of slush fund you want (more on that below).
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3 Levels to Your Slush Fund
The first step to saving for a slush fund is calculating how much you spend monthly. From there, you can work toward saving past the recommended milestones. Here is the typical progression:
- 3 Months of Living Expenses: The minimum slush fund target should be roughly three months of living expenses. A three-month savings cushion can let you readily absorb any shocks to your finances, like unexpected or voluntary unemployment.
- 6 Month of Living Expenses: You can progress to the next savings milestone with three months saved. Saving six months’ worth of living expenses is a significant financial accomplishment and can change your financial trajectory and net worth. Filling your slush fund to the brim can expand other options. (Read more about working from home or starting your own business.)
- Regular Calibration: After saving over six months of living expenses, experts recommend investing the excess savings above this watermark. While financial security is essential, younger investors will surpass the optimized growth portfolio by saving more cash.
After you have saved for your living expenses, you should regularly monitor your monthly savings. If your monthly payments increase, so should your slush fund size. Your slush fund should expand and contract based on your expenses.
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Consumer Credit Union CD
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APY: 5.00% on 13 month Certificate (Terms Apply)
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Where to Stash Your Funds
With your savings target established, it is smart to maximize the interest rate you get and the ease of access to your savings account. High-yield online savings accounts offer super competitive interest rates.
You might already store your emergency fund in a high-yield online savings account. If so, you can simply open another savings account with the same bank or credit union for your slush fund. (Read more about how to set up a savings account).
Frequently Asked Questions
Remember, tapping into your slush fund when needed is why you have it. Unexpected expenses can sometimes come out of nowhere. If you use part of your slush fund, you simply must adjust your short-term financial goals to focus on refilling your account. You can do this monthly through your budgeting system.
Keeping your regular bank account, emergency fund, and slush fund accounts separate is a smart move. Storing your savings in a different account will increase the barrier to spending your savings. If you are just starting to save for your slush fund, read more about how to open a savings account.
Stashing your slush fund in a high-yield online savings account balances growths with access. In today’s high-interest rate environment, you can get a competitive interest rate with a balance that has terrific technology. This will make managing your money easy and hassle-free.
Excellent job: you are in a solid financial position with a fully funded slush fund. The next step is to invest in stocks, bonds, or real estate. Growing your funds will increase your net worth and diversify your investment footprint.
