You may have heard that you need an emergency fund. Emergencies can happen when we least expect them: cars break down, sudden illness strikes, unemployment hits. Having an emergency fund of 6-12 months of expenses can do wonders for you in the case of situations like these.
Emergency funds are an important part of preparing for the unexpected curveballs life throws at you, but they're not very motivating. In fact, saving for emergencies can be a pretty big bore. Why? Because you’re saving for the worst case scenario and the scary “what ifs” of life rather than something fun and positive.
But what if your savings wasn’t just for things that go wrong? What if your money could be used for good instead of the unfortunate? What if saving could actually be...inspiring? Or, dare I say, fun?
This is where the freedom fund comes in.
What is a Freedom Fund?
Be honest. Have you ever dreamed of walking away from a crappy job and getting the last laugh, but you stayed because of the money? Have you ever lingered a bit too long in a stale, unfulfilling relationship, because splitting up would be too costly? Have you ever had to turn down an amazing opportunity or an exciting trip because you couldn't make it work financially?
Every single day, money either opens up doors for us or closes them. In many ways, money can hold us back and limit our choices.
On the other hand, having money set aside can boost our confidence and open up room for new experiences. Suddenly, you’re in control. You have choices.
And this is exactly where the freedom fund comes in. A freedom fund is a savings account designed to give you more options in life. A freedom fund is a financial safety net that enables you to take advantage of those options. So you can choose freedom and say “yes” to opportunities that come your way. So that when you're at a fork in the road, there are two paths you can take.
You don’t have to be stuck in undesirable situations just because of the money - if you have a freedom fund.
And herein lies the power of the freedom fund. Will you let your money dictate your life choices - or help you do what's best for you?
How to Save for a Freedom Fund
As I mentioned, saving for emergencies is important and should definitely be a part of your financial plan. However, you should also create a separate savings account for your freedom fund. Why? In my experience, when you have all your savings lumped into one account, it’s more difficult to be clear on your goals.
When you create a separate account that has a specific purpose, you know what it's for exactly and exactly how much you have. I’m a fan of Capital One 360, which allows you to create multiple savings accounts and nickname them.
You can name it “My Freedom Fund” or be even more specific and name it something like “No more 9-5s Fund” or “Travel Around the World Fund”. It’s important to have an idea of what freedom means to you and what scenarios you would use this money for. What equates to freedom for me may not be the same for you.
This is all about carving a path for your freedom, your life choices — not anyone else’s.
When it comes down to choosing a savings account for your freedom fund, consider the following:
- The current interest rate on the savings account. If possible, your freedom fund should be in a high-yield savings account that can help you earn more money.
- Any fees associated with the account. It’s best to avoid savings accounts that may have management fees or account minimums that can cost you money.
- How accessible your money is. You want to be able to transfer money when you need it, but you also don’t want it too accessible. It could be better to start fresh and open a new savings account at a different bank than your checking.
Once you create a separate savings account for your Freedom Fund, it’s time to start saving! Start by putting an initial $20 deposit in there to commit to your freedom. Then you can set up automatic transfers so your freedom is always a priority.
One easy way to do that is to set up automatic transfers right after payday to ensure you always have money in your account. For example, let’s say you get paid on the 15th and the 30th. You can set up automatic transfers from your checking account to your savings account on the 16th and the 1st day of the month for a set amount.
This ensures you are “paying yourself first” and setting aside money for your freedom fund.
How Much Should You Save for Your Freedom Fund?
You may wonder how much you should save each month for your freedom fund. There’s no easy, cookie-cutter answer, as it depends on your situation.
When figuring out how much to save, assess the following:
- Your income
- Your expenses
- Your debt
- Your goals
If your finances feel a bit squeezed right now, you may not be able to put a ton of money toward your freedom fund each month. But that doesn’t mean you shouldn’t save. To create habits is half the battle when it comes to saving money, so just setting even $20 aside per month can create a longer-term positive impact for you.
If you're on a tight budget, start slow at saving 1% of your income. So if you make $3,000 per month, you’d save $30 each month for your freedom fund. If you have a bit more room for savings, try opening up your savings percentage to at least 10-20% of your income.
There’s no right or wrong amount to save - these are simply guidelines to get started. You can always adapt and modify given your current financial situation. The key is to get started and to be consistent.
Once you set up a freedom fund and automatic transfers after payday, you’ll be on your way to saving and hardly notice it.
Why Everyone Should Have a Freedom Fund
A freedom fund sounds great in theory, but you may wonder, “Do I really need one?” The answer? Yes. Yes, you do.
Life is full of situations in which money can be the catalyst for freedom or change. Without a freedom fund, you may be limiting your choices without even realizing it.
A few years ago, I thought I finally got what I wanted and secured a full-time job. After a few months, I started to feel that it wasn’t the right place for me, personally or professionally. I found myself at the mercy of office politics and constrained in my job.
I knew I wanted to quit, but I was deep in student loan debt. How could I ever quit a full-time job if I had debt?
So I started to save more money so that I could make my dream possible. I put money away in a freedom fund, so I could kiss that job goodbye and strike out on my own. I ended up saving $3,000, which at the time equated to several months worth of expenses. That and my income from freelancing gave me the confidence to leave my job when I saw that things were only going to get worse.
Quitting my job was one of the best decisions I’ve ever made and it helped me earn more money to pay off debt.
Now that I’m debt-free, my freedom fund has given me the opportunity to say yes to last minute trips and opportunities. I’m no longer stuck with one choice - I can do what's best for me.
Having choices is the ultimate form of freedom. I remember a few years ago when I was deep in debt, with little savings left, I felt stuck. My answers were always “no.” Because of that, I ended up being in situations longer than I should have been and doing things that didn’t make me happy or serve my purpose. To be honest, it sucked.
It’s not fun feeling helpless or stuck because of money. With a freedom fund, you can fuel your independence and create your own choices and opportunities in life, instead of sticking to the choices that are solely decided on because of money.
Just like it was for me, a freedom fund can be your ticket out of a bad situation or allow you to say yes to an opportunity you never thought would come your way. So, while it’s important to save for emergencies and pay off debt, it’s also important to save for your freedom. At the end of the day, money should be used as a tool to enhance your life, not limit it.