Feeling Stuck? Maybe You Need a Freedom Fund

Dear Carrie,

It seems like everyone tells me to save my money for the future, but what about the present? I feel like I'm stuck in a rut with no way out. Any ideas on what I can do to feel more in charge?

—A Reader

Dear Reader,

When it comes to financial advice, you're absolutely right that it tends to focus more on the future. Retirement gets a lot of play and often the idea of financial freedom is associated with having enough money to live the life you want once you stop working—which is often way in the future. So I think you're right to ask—what about now?

No matter where you are in life—in your career, your relationship, whatever—there may come a time when you feel stuck and want to make a change. And that may be sooner rather than later. Just look at all the people who joined the recent "great resignation." But wanting to change is one thing; having the freedom to prudently make a change is another. And to a large extent, it comes down to money. So how can you get "unstuck" and take charge? Here's an idea.

While you may have heard of it by another name, I like calling it a "freedom fund." To me, a freedom fund is money you save just for you. Think of it as an expansion of your savings strategy. It's not necessarily at the top of your savings list—but neither is it at the bottom. It's kind of a next step once you have a couple of other important goals covered, or at least in the process.

A freedom fund isn't the same as an emergency fund. An emergency fund is meant to cover your expenses when you're forced to make a change, not just when you want to. Something like a layoff or an illness can take you by surprise and you have no choice in the matter. You're suddenly caught without an income. So, as I always suggest, it can be prudent to do your best to put away enough cash to cover three to six months of essential expenses to carry you through until you get back on your feet. Keep this money easily accessible in a savings or money market account. And promise yourself you won't touch it just because you're itching to do something different. Whatever future course you take, you still have to be prepared for the unexpected.

Retirement may be years ahead, but it still shouldn't be ignored. You don't have to save everything for the future, but you're smart to save something. If you start in your 20s to put just 10 to 15% of your annual salary in a retirement fund like a 401(k) or an IRA and keep saving that same percentage the rest of your working years, you are likely to be in pretty good shape for the future. That can allow you to focus more of your savings on the present.

Chances are you're already saving for some near-term goals—a trip, a new car, a computer. So maybe you need to refocus on what you really want. Perhaps those "things" are less important to you than having the financial freedom to make a change. This would be the time to redirect that money to your freedom fund.

Or maybe you've been struggling to save. If that's the case, consider doing some personal accounting as well as some soul searching. Take a good look at your income and your expenses. How much goes to needs, how much to wants? And how much slips through the cracks for complete unnecessaries like online subscriptions, unused gym memberships, take out—all the ways we spend money without really noticing. That's money you could start saving just for you.

Once you have your freedom fund started, decide where to keep it. Unlike an emergency fund, it doesn't have to be immediately accessible, so ideally you could put it into an account that will give you a bit of income. If you're thinking of it as a short-term solution, you might choose a CD ladder. If you're thinking a bit longer-term and could tolerate some risk, you could invest a small portion of it or consider keeping it in a high-yield savings account. 

To me, a big key to being free to make a change in life is having a certain amount of financial independence. That doesn't mean being independently wealthy. It means knowing where your money's going, taking charge of where you want it to go, and creating and sticking to a savings plan so you have access to money when you need it.

And the amount of money that will make you feel free is totally individual. For some people, having a freedom fund to cover 6 months could be completely liberating. For others it might be a year or more. The point is that if you have a certain amount of money set aside that's just for you, it might give you a sense of autonomy and the confidence that you're in charge. Just knowing you can make your own choices may be the most freeing of all.