The “Setback” Fund


The “Setback” Fund

Caught an interesting idea from a reader of the blog yesterday:

Setting up a “setback” fund to help cover all the stupid mistakes you make!

Found it buried in her list of 14 goals she’s currently shooting for, but it stood out to me the most since it’s such an easy way to automatically feel better about all future blunders, haha… which of course you KNOW will happen, it’s just a matter of *when* 😉

She got the idea for it over at another blog, Nerd Fitness, who recommends doing an “idiot audit” of your life, and then setting up automatic transfers to help your Future Self out, haha…

Do an “Idiot Audit” of your life. What is something that has got you in trouble in the past or something that would really mess with your life should it happen?

  • Do you get speeding tickets often? Set aside $50 a month for “speeding idiocy.”
  • Do you always break your phone or drop it? Buy idiot insurance for $5 a month or start a fund.
  • Have a high insurance deductible? Start setting aside money NOW for that deductible so if you were to get injured or needed to go to the ER, you’re not financially destroyed should things go south.

…An honest audit of what you can screw up, and automated plans to get you back on your feet, can really help mitigate that feeling of hopelessness when things go wrong.

Pretty smart, right?

Our friend is working towards a flat goal of $500 to cover her future setbacks, but really you can make it whatever you want like the above examples suggest.

Here was the full list of her goals, btw, which were also fun to check out…  She totally one ups the 50% of all extra income savings idea and goes full throttle with the entire 100%, haha… Baller!

  • Car maintenance (5%) – goal: $600/yr
  • New car (5%) – goal: $12,000
  • Emergency fund (5%) – first goal: 1 month’s expenses ($1,300)
  • Replacement fund (5%) – goal: $3,000
  • No job fund (5%) – goal: no limit (used as funds in-between jobs)
  • Impulse tax fund (0%) – not really funded regularly—this is for any impulsive purchases that I catch myself on before I buy, and certainly any that aren’t social in nature; move the money here instead so it feels like I spent it, without actually spending anything
  • House fund (35%) – first goal: $66,000 (20% down on the house)
  • Income streams (5%) – this is for trying to create new money – spray paint art, blogging, M-V, computer programming – anything I want to try that needs more learning first, but that might help make some money with that new knowledge
  • Education (5%) – this is for Community Ed classes, Udacity nanodegrees, WGU tuition or tests, etc. Anything legit to continue my education and knowledge!
  • Social (5%) – this can be for anything, food, coffee, hanging out, purchases – as long as it’s with or for other people
  • Vacation (5%) – goal: $6,000/yr
  • Setback fund (5%) – first goal: $500 (my ‘idiot/accident’ fund, for things that go wrong inadvertently)
  • Taxes (5%) – after the scare of this year, where I thought I would have to pay in $900, I want to make sure that doesn’t happen again!
  • Tithing (10%) – will probably go to Compassion, but can go to some other cause too

The “income streams” and “education” funds were my second favorites as they’re all too often ignored, yet so powerful for both personal and financial growth. And I always find it’s much easier to spend money that’s already allocated towards something than pulling it from the whole big pot! Despite me sucking at separating out my funds unless I’m currently on a particular mission (like our Spavings experiment, or again our old Challenge Everything mission).

In fact, every time I hear about creating multiple funds I’m always reminded of a post Chenell once wrote for us here on why having just one main savings account is bad. And her reasoning for it is pretty solid:

  • You’ll forget how much money you’ve saved for each goal
  • You’ll forget all the things you were even saving for
  • You’ll always think you’re saving more than you really are
  • You might think you have extra money to spend when you don’t
  • It’s hard to tell how close or far you are from achieving your goals

The first two there I can attest to 100%, haha... When it’s all grouped together like that you can’t tell what is what unless you’re tracking it on the side in a spreadsheet or something! And even then it’s probably not as impactful as literally seeing the bank balances all separated out cleanly…

I really wish I wasn’t so stuck in my ways sometimes, but the minimalist in me has such a hard time wrapping my head around managing so many accounts – no less 14 of them! – that I can never stick with it for too long.

Still, a pretty good idea to consider if your current strategy isn’t working too hotly, and most banks these days make it pretty easy to do. Then you’ll just have to create your “setback” fund as one of your first new accounts and get this troublemaking party started! Haha….

Anyone already rocking one and loving it?? Do you have multiple savings accounts going too, or just one main one you manage like I do?

Give us the dirt as always, and don’t be stingy with the fails as those always make us feel a little better! 😉 I think I need like a $20,000 fund to save me from all my blunders over the years, haha…


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