Why you need F-you money, and 5 ways to build it

How often have you wished your life weren’t dictated by money? That you had the confidence to walk away from a job or a situation without worrying about the financial implications?

That’s why I believe everyone needs “F-you” money. Or call it your “freedom fund”, if you prefer. The type of wealth that means you’re not financially dependent on any employer, client, or scenario, giving you the choice to stay or go.

So often in life, we feel we have to simply put up and shut up because we can’t afford to leave a situation that is making us stressed or unhappy.

There can be a powerful psychological shift when you don’t feel this way, however. Not “needing” a particular job means that you choose to work, and not relying on a person or situation means you’re choosing to stay, rather than feeling forced to.

Your decisions can be driven by your own values, rather than financial implications

When I say F-you money, I’m not necessarily talking about being super wealthy. Even partial financial independence can give you a major confidence boost.

• Saving just one year of expenses can reassure you that you’re covered in the short term.
• Investing to cover 5 to 10 years of expenses may afford you greater flexibility.

American financial writer JL Collins argues that spending excessively on possessions can limit your financial freedom, as they need constant financial input to maintain them.

However, he argues that investments can increase freedom by reducing your dependence on earned income. So, the more money you have invested, the more control you have over your own life – although this will depend on individual circumstances and investment performance.

I’d like to ask you this question:

“If your income stopped tomorrow, for how many months or years could you manage financially?”

If the answer is none at all, then it could be time to start looking at building up your “freedom fund”. Here are five ways to go about this.

1. Create an emergency fund

This is the first and most fundamental part of your plan. Keeping three to six months’ worth of essential expenses in cash (or a liquid asset) can protect you from shocks, unexpected costs, or a job loss.

While it’s not quite in the F-you category, an emergency fund can give you some reassurance that you’re covered for a while.

2. Build your investments

This is where your fund starts to get a little more interesting. Investments can help your wealth work for you, so your money grows rather than sitting dormant in a bank account.

Look at tax-efficient options, such as a Stocks and Shares ISA, or your pension, where appropriate. This adds another string to your “freedom bow” by enabling your wealth to accumulate in the background, helping to give you the choice (and confidence) to say no when you want to.

3. Decide on your savings rate

The proportion of your income that you invest, rather than spend, can help to speed up how fast you become financially independent and rely less on your earned income.

A good financial plan can help you figure out realistic savings targets that fit with your current lifestyle and future aspirations. These targets can also vary depending on where you’re at with your career: if you’re just starting, you’re likely to contribute less than later on in your career.

When we make your financial plan, we can explore different scenarios to see how your savings choices could affect your wealth over the long term.

This can show you what proportion of your income you need to invest over what timescale to achieve full financial freedom.

4. Manage debt

This is an integral part of your freedom plan, as being tied to debt inevitably limits you. If you need to repay debt, then you’ll be more reliant on your income than if you’re debt-free.

Managing and reducing debt is, therefore, a key part of your freedom planning. Prioritising clearing high-interest debts can increase the amount of money you have to save and invest.

You shouldn’t underestimate the psychological benefits of paying off debts, either. Being debt-free can help you feel more in control, so you can focus on your long-term financial freedom.

5. Assess your spending

The more expensive your lifestyle is, the more you need to sustain it. In turn, this can make you more dependent on your income and less able to walk away.

This isn’t about holding back and not enjoying your life in the here and now. But making sure you’re spending because you want to, not because of social pressures or expectations, can help to keep you on track.

Get in touch

If you have any concerns about your investment strategy or financial plans, please get in touch.

You can call me on 07769 156250.

Please note

This blog is for information purposes only and does not constitute advice or a personalised recommendation. The information is aimed at individuals only.

Please do not act based on anything you might read in this article. This blog is based on our understanding of current and proposed legislation, which may change.

The value of your investments (and any income from them) can go down as well as up, and you may not get back the full amount you invested. Past performance is not a guide to future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

When investing, your capital may be at risk.