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Why Everyone Needs "Mad Money" (and How to Save It)

At a basic level, having mad money means having the extra resources needed to make choices based on factors outside of your finances.

May 24, 2021

If your work situation were to turn toxic, could you afford to leave without having another job lined up? If a bad landlord left you in unsafe housing, could you break your lease to seek out a new home without completely derailing your finances?

That’s the beauty of “mad money,” also known as “F you money” or “FU money” (we’ll leave the full spelling up to you). 

At a basic level, having mad money means having the extra resources needed to make choices based on factors outside of your finances. The exact buffer every person needs to feel confident making these decisions will vary, but the importance of F you money is ultimately the freedom it provides.

Sound good? Here’s more on why you need FU money, how much you need to have and how you can get started saving it:

What Is Mad Money?

Barry Popik, an Oxford English Dictionary contributor, traced the term “mad money” as far back as 1922 when Howard J. Savage used it to refer to “money a girl carries in case she has a row with her escort and wishes to go home alone.”

Women’s financial independence certainly looks different these days than it did in the 1920s — having access to cab fare isn’t nearly the same as having the financial resources needed to make life-changing decisions today. Instead, having a mad money buffer may mean being able to:

  • Take an extended leave from work if your health or well-being is suffering

  • Cancel a lease or contract you’d otherwise be trapped in

  • Negotiate a fair raise or promotion at work (or walk away from unfair offers)

  • Decline unreasonable requests from your boss, without worry of retaliation

  • Leave an abusive, violent, or dangerous situation

  • Help others you love to escape these same circumstances

Interestingly, though, there’s no single definition or dollar amount that’s universally considered to be “enough” when it comes to mad money. Instead, arriving at your own FU money number comes down to your circumstances and lifestyle requirements.

Planning Your Mad Money Approach

When setting a mad money savings goal, think about your current situation. Are you already in a bad spot, or are you simply planning ahead for future unknowns? What do your existing savings and expenses look like? Do you have children, health issues, or other factors that may affect your long-term financial requirements?

As you’re evaluating these considerations, take a look at the different models used to calculate FU money target savings goals. For example, in a Lifehacker article, contributor Nilesh Trivedi defines mad money as “any amount of money allowing infinite perpetuation of wealth necessary to maintain a desired lifestyle without needing employment or assistance from anyone.” 

Trivedi’s suggested (and somewhat complex) calculations aim to identify the amount of savings needed to cover expenses across an estimated lifespan, taking interest earnings and inflation into consideration. If you’re a numbers nerd, going through his equations on your own can provide more personalized insights (though he eventually arrives at the same “25x anticipated expenses” calculation used by many in the FIRE movement).

On the other hand, author JL Collins set his own personal FU money threshold as low as $5,000 in 1989, which allowed him to walk away from a job that wouldn’t let him take a sabbatical. On the Mad Fientist podcast, he notes, “F-you money not only allows you to step away if you choose to step away, but it also empowers you and gives you negotiating room that, at least in my case, I never knew existed.”  

Todd Kunsman of the Invested Wallet blog offers a balanced take between these two extremes, suggesting readers aim for having both short-term FU money and long-term financial independence money

While his long-term recommendations follow the 25x FIRE guideline, he argues that just 6-24 months of saved income is a worthwhile target that’ll give most people the flexibility they need now while they continue to build their long-term retirement savings. If you spend $5,000 per month, for example, your FU money target would be between $30,000 and $120,000.

That said, most financial bloggers are clear: mad money is not the same thing as an emergency fund. It’s easy to see why. Imagine that you encounter a true emergency — such as an unexpected illness or accident — shortly after exercising your FU money options. Since the same money can’t cover you twice, using your emergency fund on anything less than an actual disaster could leave you vulnerable.

Building Your Mad Money Savings

Whether your mad money approach involves saving enough to break your lease or walk away from work for a lifetime, the process for achieving your FU money goal is largely the same as reaching any other savings milestone: to add to your savings, you’ll either need to earn more or spend less (or both). 

You probably already know the basics here: cut the lattes, take the bus, drop the extra subscriptions, and start cooking at home. But to make saving mad money more fun, why not get psychology on your side by tying your savings to specific FU goals?

Instead of aiming to save millions of dollars all at once, get creative about matching savings milestones to the specific situations where mad money might help you. For example:

  • Figure out what costs you’d incur to break your current lease or to put a security deposit on a new rental, and then focus on saving that much. Even if your current housing situation isn’t dire, you’ll gain the peace of mind that comes with knowing you’ve got options in the future.

  • If taking an extended leave to travel is a priority, make a list of potential costs. It’s much more fun to save up the cost of airfare to your dream destination than it is to try and hit some arbitrary savings goal.

  • Divide your total monthly expenses by the number of hours you work per month. Every time you bank that dollar amount in your mad money savings, you’re effectively buying back an hour of your time in the future, should you need to say ‘FU’ to a bad situation.

One often-overlooked option for cutting costs is to reduce the amount of interest you pay. If you carry high-interest credit card debt, you may be able to lower interest expenses through an app such as Tally. Just be sure to redirect your savings towards your mad money account, rather than allowing lifestyle inflation to set in. 

Over time, even small contributions will add up to build the buffer you need to feel confident saying “F you” as you walk away from a bad situation.