Why you need a freedom fund
Who wouldn’t want a stash of money that’s just yours and provides the freedom to make whatever changes you want in your life without worrying about the financial consequences? It’s no surprise that Paulette Perhach captured the imagination of millions of women in 2016 when she wrote about the need for such a financial safety net – or ‘F***Off Fund’ – in the now defunct blog The Billfold. The post went viral. ‘Every woman should have a F*** Off Fund so that she can write her own story,’ wrote Perhach. ‘That kind of freedom is the fanciest luxury I’ve ever known.’
Whatever you need it for and whatever you want to call it – Freedom Fund, Flight Fund, F*** Off Fund – the concept has come to symbolise empowering change through financial independence. If you are ready to start the journey towards creating your freedom fund, however long that might take, here’s where to begin...
Who needs a freedom fund?
The need for financial independence is something everyone shares – we all need to be able to get ourselves out of trouble should we have to. No one can predict life’s ups and downs and it’s vital that, if we’re able to, we prepare for whatever financial challenges life can throw at us – as the last few years have shown.
‘Ultimately, everyone should have a fallback,’ says Emma-Lou Montgomery, associate director for personal investing at Fidelity International. ‘This doesn’t necessarily mean you want to ‘run away’ from your partner or that you’re being secretive about your money. It does, however, mean you have the savings to make choices.’
The concept of a freedom fund has added relevance for women, says Simonne Gnessen, founder of Wise Monkey Financial Coaching and co-author of Sheconomics. ‘It’s only since the mid-1970s that women have been given the right to open a bank account and to apply for a mortgage or credit card in their own names. I think because women have this legacy of financial disempowerment within our very recent history, some of us may still hold some deeply embedded, self-limiting beliefs.’
What is a freedom fund for?
The idea of a freedom fund isn’t just to help you cope with bad situations (death, divorce, toxic relationships or redundancy) without needing to worry about the financial implications. It’s about being able to take advantage of opportunities, too. You might want to use it to fulfil an ambition to set up your own business, step back into further education or realise a travel dream.
Ali Poulton, head coach at Octopus Money, says: ‘What happens if you’re stuck in a job you feel you can’t leave or you want to try something new but you can’t afford to take the risk of it not working? For this reason, and many others, it’s important to have an emergency fund built up just for you and your future. It will give you the option to look for other opportunities or take some time off to study without panicking about paying your bills.’
Regardless of your relationship status, growing confidence in your finances is key to gaining financial independence. New research by Fidelity found that 60% of women with at least £1,000 in assets felt confident to make all the decisions about how they spend and invest their own money themselves. This has grown from 56% in 2018.
How to work out how much you need
There’s no magic number we can pluck out of the air for you – how much you’ll need depends on your plans. To work out how much you’ll require in your fund, chartered financial adviser Lisa Conway-Hughes suggests the following equation to help with setting a realistic target: emergency cash + cash costs – cash wins = dream achieving fund.
Emergency cash
This is how much you need to save to cover your living costs (rent/ mortgage, household bills, food, petrol, anything else you consider essential). All the information you need is on your bank statements. If you are currently relying on credit, tackle this first. ‘If you have very limited financial responsibilities, then you can work towards having three months’ worth saved,’ says Conway-Hughes. ‘If you have a large mortgage and dependants, then six months is going to be a better idea.’
Cash costs
Now work out how much it would cost to move forward with a long-term goal. Everything can be priced, and for every situation there is someone with the expertise you need – be it a divorce lawyer, Citizens Advice, the small business advisor at your bank or gov.uk. ‘Gather as much information as you can from people who have already achieved what you are working towards and don’t be shy to ask them as much as you can about the money – set-up costs, hidden costs, financial things that they wished they’d known before they’d started,’ says Conway-Hughes.
Cash wins
Do you have any other sources of money? For instance, existing savings, anything you could sell for cash, potential family loans. Are you entitled to any financial assistance and support? ‘Tally up all these “cash wins” and add them to the formula,’ says Conway-Hughes.
How to build up your freedom fund
Setting yourself a big financial goal might feel challenging in these tough times, but here are a few tricks that will help:
Prioritise the future
‘We make decisions about what we spend and save every day,’ says Gnessen. ‘All of these choices offer ways to do things differently if that freedom fund is really important to you. You can save extra little bits here and there – even if you start small by selling something on eBay.’
Create the mindset
‘Write down your goal, draw a picture, tell a friend! There are all kinds of things you can do to make your intention more embedded,’ says Gnessen.
Keep the funds accessible
These savings need to be within easy reach, so it may be best not to squirrel them away into an account that requires you to give notice or invest them in the stock market, where the size of your fund will be hostage to the short-term ups and downs. Use an easy access account that is separate to your current account.
Don’t set yourself up to fail
‘Be realistic about setting milestones,’says Gnessen. ‘If you’re in the mindset of “I’ll never be able to save that much money,” you’re not going to be creative. Focus on what’s possible, rather than what you believe is impossible.’
Track your progress
Create a flow chart with each of the actions you need to take to move you closer to your overall goal, step by step. Stay focused and you will get there!
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