While you’re probably well aware of the importance of building your emergency savings to prevent unexpected expenses from wrecking your finances, there’s something else you may want to set aside money for as well: a “me fund.”
As the name implies, your “me fund” is money you’ve earmarked for purchases that aren’t necessities but would still be nice to have, such as concert tickets, clothing or other splurges.
“It’s not an emergency fund. It’s not a rainy day fund. It’s just for you,” Rita Cheng, a certified financial planner and chief executive of Blue Ocean Global Wealth, tells CNBC Make It.
Although saving for emergencies is important, a “me fund” allows you to treat yourself every so often without breaking the bank. Here’s why you should consider one and how to get started.
Why your ‘me fund’ is important
Whether you’re saving up for a vacation or a certification course that could help you land a new job, your “me fund” can help you both personally and professionally.
“Who better to invest in yourself than you?” Cheng says. “Investing in yourself may look like self-care and wellness or could be getting new skills needed for a new job.”
Say you want to make a career change that would require additional training, such as a specific certification. It can cost hundreds, or thousands, of dollars to complete the education, training and exams required to gain professional credentials, depending on the industry.
That’s where your “me fund” comes in. If you’ve set aside money ahead of time, you’ll be able to use it to develop your professional skills without disrupting the rest of your finances, Cheng says.
Cheng has used this strategy in her own life. Before she became a certified financial planner 20 years ago, she evaluated the associated costs and how she would be able to cover those expenses while still taking care of her two young children at the time.
Her solution was to create a “me fund,” which she allocated money toward after taking care of other financial priorities. She later used it to cover her classes and exam fees.
Another perk: No matter what you use your “me fund” for, it can help you avoid expensive credit card debt from overreliance on your card for discretionary purchases, Cheng says.
How to build your ‘me fund’
Before setting aside money for your “me fund,” make sure you’ve taken care of your financial priorities, like housing and food.
One common strategy is the 50-30-20 method, in which you set aside 50% of your income for necessities, such as your rent or mortgage payments, utilities and groceries, 30% for discretionary expenses, like your “me fund,” and the remaining 20% for savings and investments.
Even if you’re not able to stick to those allocations exactly, it’s OK to start small when beginning to build your “me fund,” Cheng says.
“Don’t focus on the amount,” Cheng says. “Even if you take a little from every paycheck, you’ll see how that grows.”
And remember, as you build up your “me fund,” don’t be afraid to actually spend it.
“I don’t want people to feel like they’ve worked so hard to accumulate this money and now it’s stressful to see it go down,” Cheng says. “Your ‘me fund’ is a judgement-free zone.”
Want to make extra money outside of your day job? Sign up for CNBC’s new online course How to Earn Passive Income Online to learn about common passive income streams, tips to get started and real-life success stories. Register today and save 50% with discount code EARLYBIRD.
Plus, sign up for CNBC Make It’s newsletter to get tips and tricks for success at work, with money and in life.