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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  1. Karen June 12, 2019 at 7:14 AM

    I have a high interest online savings account, one big pot. But, I categorize/prioritize in $5K chunks to allocate a purpose for every $ . A $5K sinking fund, $5K car fund, $5K vacation fund etc within this large savings account. I keep track of each allocation and sometimes have to reorder the priority. I automatically fund this account every month. Having a clear purpose is key, do what works, separate or one big pot as long as it is not so easily touchable.
    I’m all for it.

    1. J. Money June 12, 2019 at 3:02 PM

      Oh nice – hadn’t heard of that idea before! Prob easier to track mentally knowing every $5k is “a goal” :)

  2. Kate June 12, 2019 at 8:24 AM

    I’m such a broken record on your blog sometimes but I’m a long term YNABer through and through so I just have one big account for my daily/weekly/monthly life expenses AND all my various savings goals: travel with subfolders for each vacation, house renovations with subfolders for each project, mortgage overpayments, rainy day funds, annual public transport card, Botox (!!!), quarterly utility bills, Christmas, etc. Too easy!
    I do have a separate investment account (17% of salary that I “pay” on payday) which has been emptied twice, when buying a new home – twice, but generally it justs sits there.
    And I’m very harsh on myself… When I make an idiot move I punish myself by taking the cash out of fun category (hello manicure fund!)!

    1. J. Money June 12, 2019 at 3:05 PM


      You’re always welcome to be a broken record on this blog when you talk nerdy like that ;)

  3. The Money Geek June 12, 2019 at 9:19 AM

    I’m definitely a minimalist when it comes to my accounts, but I do layer my savings. I have a savings account for emergency funds and short-term goals, a cautious investing account (30% stock / 70% bond) for intermediate needs (3 to 7 years out) and an aggressively invested retirement account.

    I don’t set aside funds for specific objectives, but I use Quicken faithfully and know when we can afford the extras we want (like our recent trip to Europe) without throwing off our longer-term objectives.

    Works for me, but I do see advantages to the method above and having a more objective-oriented savings structure.

  4. Becky June 12, 2019 at 10:38 AM

    Hi J! We have four savings going right now – Christmas account, house renovation account, emergency account, and what we like to call our “Someday” account (which could be for trips or things we always say “someday, we will do…” I really like keeping it separate, but we know if something really major happened and we needed the money, we could pool it together. We’ve gone almost three years without having to that though. I want to start a few other accounts, one being a new business/start up fund. Great tips you post on here :)

    1. J. Money June 12, 2019 at 3:09 PM

      Yes to the new biz fund!!!

      Great for experimenting around and learning too (ie taking courses/buying books for the new biz/etc… Can never take away your knowledge!!)

  5. Jon June 12, 2019 at 10:51 AM

    We have been rocking the sub accounts for online savings (Currently Ally just switched from Capital one 360 thank you very much) for years. Funded with automatic paycheck contributions.
    IN addition to regular household savings and checking:
    Vet emergency fund for unexpected vet bills

    Household Tax and insurance to pay property tax/insurance started after we paid off our house. Basically our own escrow account.

    Vacation Fund

    Home Improvement Fund

    Wedding gifts/honeymoon fund where we put in all our cash wedding gifts. Still havent touched it for 8 years.

    1. Kristina Shepard June 12, 2019 at 12:57 PM

      Hi Jon –

      Curious what made you change from Capital 360 to Ally? I’ve been considering the opposite as I liked the idea of having multiple savings accounts with the 360 offering. I could create individual savings in Ally but that seemed easier. Thanks for any feedback!

      1. Jon June 13, 2019 at 8:42 AM

        Hi Kristina,

        Ally is currently paying me 2.20%. When I left Capital one 360 earlier this year they were only paying 1%. I had been with them since they bought ING Direct. Over the years it seemed like they were getting less and lass competitive. So far I have been happy with Ally, they give me the same ability to create sub accounts on the fly that Capital One did.

        Also on a personal note I never forgave them for charging me a late fee on a credit card many years ago for paying my account one hour late. I was on west coast time and they informed me the payment was calculated via eastern time. I’m much more responsible now and would never wait that long but still it felt good to finally be Capital One Free lol.

        1. Kristina Shepard June 13, 2019 at 11:47 AM

          Thank you for the reply, Jon! I think I’ll stick with Ally and create a few sinking funds.

          Happy Saving! :-)

          1. J. Money June 14, 2019 at 6:46 AM

            The bank Chenell uses too who I referenced in this article is Ally :)

  6. Nita June 12, 2019 at 11:11 AM

    I have just one account, but I allocate the funds on it with an Excel spreadsheet. The banking app tells me I have, say, €9,570 on this account. My Excel sheet will tell me that at this point of time I have €7,000 for home improvement, €1,320 for short travel, €580 for a hobby, and so on (the amounts are invented).
    The Excel sheet features every project ongoing (currently 3) plus other funds for fun (e.g travel fund) and not fun (annual insurance, taxes), each accompanied by current total and number of months remaining until the aim is reached.
    Obviously I check the Excel total matches the bank total. Every deposit and withdrawal in/from any fund is reported on the spreadsheet.
    Only exception: the emergency fund is on a separate account.

    I think I’ve seen that setback fund idea on your blog already, in a hack under the name of stupid tax or something like that.
    I’d be wary about accumulating insurance like the “idiot insurance” mentioned. You need to really need it.
    I remember reading in a consumer magazine a few years ago that it’s extremely unprofitable for most people to subscribe to all this insurance: pay €5 phone insurance every month to your cell phone provider, add €3 to your train ticket in case you miss it… all those add up and are mostly useless. The rate of profit for insurers off these products is incredibly high (the probability of anything going wrong is already low, but the probability that whatever goes wrong falls under the terms and conditions is significantly lower).
    It’s probably similar in the US. As the article concluded, “better put aside €30 every month and use that fund to repair your phone or replace your ticket; and if nothing happens next year’s vacation fund will be €360 richer”.

    I will be adding this setback fund to my spreadsheet. I can’t think of any recurrent cases of stupidity (I’m more for expensive one-offs: last year I booked a flight for June 9 instead of June 2), but it doesn’t hurt to have a “missed my train” fund.

    1. J. Money June 12, 2019 at 3:12 PM

      Oh, I read it as just *paying yourself* the insurance via the Idiot Fund instead of literally signing up for insurance, but your take might also be correct. I do agree that some things are better to self-insure though for sure… And usually having a nice “pot of savings” in general can work for a number of instances whenever needed :)

  7. Pam Kanthor June 12, 2019 at 12:17 PM

    I have 4. One is for insurance, another for property taxes, emergent fund and the last is fun stuff. Works for me.

  8. Abigail @ipickuppennies June 12, 2019 at 1:02 PM

    I have 11 different accounts: savings, emergency fund, washer/dryer fund ($2.50 every time I do a load of laundry — up to $1,200 at this point!), car fund, vacation fund, taxes (I pay quarterly), car insurance fund (to save up for my yearly premium), saved savings, an escrow account (for the tenant’s deposit on the guest house), saved savings (anything I save with coupons or sales) and an iPhone fund (which just got emptied when I upgraded… to a 7 because I’m too cheap to buy the latest model). The iPhone fund will become my fun money account now.

    I like having the different funds because I feel sick when I lower savings, so if I have to spend money on various goals I prefer to have it set aside specifically for that purpose.

    1. J. Money June 12, 2019 at 3:15 PM

      you’re a better $$$ nerd than I!

      i would prob feel better too with multiple accounts if I can ever get myself to finally do it :)

      always love hearing about your laundry hack too!

  9. Liz June 12, 2019 at 6:06 PM

    We have different accounts. My husband wanted 1 account but it gives a false sense if security.
    We have mostly CDs as savings accounts they range from 2.2% to 3.2%. the accounts are emergency fund and each kid (3 accounts) has their own for birthday/ Christmas money or money I get from selling their old toys/ clothes. We have a high yield savings account for our next car we plan on buying in March 2% interest on that. For savings accounts we have a house fund for home repairs and a car insurance fund for our next premium.

    *Knock on wood* we have never used our emergency fund even when someone totalled our car we had enough in our car fund to get a new one. If small things pop up we can pay for it out of our monthly income. We have 6 months saved anyways. I don’t work and my husband is the sole provider ( he’s military) with a pretty secure job. That’s why I chose a CD for the money we don’t plan on touching it.

    1. J. Money June 13, 2019 at 7:34 AM

      I like that idea of selling your kids’ stuff and then stashing the money into their accounts :) I might have to try that idea as it might just help my kids WANT to finally get rid of some of their stuff! Haha…

  10. Lisa June 13, 2019 at 10:52 AM

    We have multiple funds at Ally – House taxes, house insurance, car insurance, pellets (that’s how we heat the house, haven’t spent over $1000 on heating in well over 15 years), vacation, OMG! (yes, that’s actually the name, for just in case), emergency savings and one just for fun stuff

    1. J. Money June 14, 2019 at 6:47 AM

      Haha, love that OMG! fund ;)

      And even more so on those pellets, wow!!! I’ve heard of them before but never realized they were *that* efficient?!

  11. paula June 14, 2019 at 10:22 AM

    I do the multiples to make myself realize “I CAN buy this, but I CAN’T afford it.” Please don’t judge, and keep in mind as a single person in a great city, I live small. At least, that’s my excuse for the following account to be funded at a higher rate per month than my rent:

    “Beer, bourbon and excessive fun.” This is for an emergency of the entertainment variety, as it seems there are months out of the year where EVERYONE comes to town right when I’m at the end of the month… Or when one of my photo clients says “Hey, we comped you a room, if you jsut want to relax for our two-day shoot.” (yes, please. But now I need underwear)

    Others of mine have been/are:
    “The cat can’t die” (I take it out of the beer fund. How bad would I feel if I couldn’t treat the cat because of my beer budget?)

    Shit breaks. This fund is currently broken, as I lose phones. However, neighbor gave me their trade in. so WIN.


    Summers without bartending (I”m a teacher who once thought working in the summer sounded great. never again. So… since I work 37/52 weeks, I try to save 28 percent.) Miserable failure at that this year, but a tax return will cover my malfeasance this year.

    Second Act.
    This is when I allow myself to spend money on a hobby that might become a twilight career. Currently photography. Has also been used for additional teaching certifications, and sometimes just to buy bourbon at a networking event. Because I hate networking.

    I also separate my fixed expense account from my discretionary fund. I like this because I need that flexibility. Some months I eat out more and that has to be higher, while the grocery bill goes down. Sometimes the car bill is low because I had to spend it on uber. (remember, I have a healthy bourbon fund)

    Also separate account for money going in/out on my rental condo. Easy way for me to see that it’s paying off or not.

    And.. I will say, when applying for a mortgage, my realtor HATED these accounts.

    1. J. Money June 14, 2019 at 3:26 PM

      You need a new realtor! Haha..

      I was DYING over here pouring over them – they’re great!

      Most especially that “Beer, bourbon and excessive fun” fund :)

      Tell me you’ll treat me to one of your favorites if we ever meet up in real life? I don’t know much about bourbon but I’d love to! Always enjoy it whenever I *remember* it’s an option (which is rarely)

      1. Paula June 14, 2019 at 3:44 PM

        Oh yeah, that realtor is history. She seemed to think I wanted something already done, overpriced, and in a dicey neighborhood rather than the worst condo in a good neighborhood. One unit actually had the bedroom window facing the garage exit where 60 residents park their cars. GAH.

        I love taking people out for bourbon! I have a friendly aquaintance with the owner of a bourbon bar in my neighborhood, and we met there with an Italian rockabilly band so we could all do as many flights as possible. That night ended with me explaining to the Italians that hugging Chicago police officers is not a good plan. Even if you are saying “Thank you for your service!” in English.

        I do like them simple, though. I tried fig and blueberry, but ewwww. And don’t get me started on the lavender whiskey trend. If I want tea and flowers, I’ll get tea and flowers.

        1. J. Money June 14, 2019 at 3:54 PM

          I’ll take your word for it, haha…


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