Among the many stages towards financial independence, one of the most important is accumulating enough F-you (FU) money. FU money is when you have accumulated enough savings to enable you to temporarily leave your job without worrying about where the money your next bills will come from. Theoretically, you will be able to sustain your current lifestyle for a certain period of time which you are comfortable with; for example for six months, up to a couple of years or even several years. Here are some of the benefits which workers can obtain due to the power of FU money.
Ability to take a mid-career break
Over my working life so far I have encountered a small number of people who have managed to take short breaks from employment, in-order to travel around the world. These are usually in the form of sabbaticals and last for a few months. However, these schemes have a lot of conditions attached by the employer such as one can only take them after working for several years and only about 20% of companies in the UK offer sabbatical, with a further 10% considering introducing them. Obviously, some savings are needed to do this, but FU money can be substantial and allow you to leave one job, take a break and then find a new one when needed. Not many company restrictions this way.
When heading towards financial independence it is probably better to avoid such breaks as this will disrupt both earnings and savings, making the time to achieve the ultimate goals longer. Once the journey is complete, you would have enough assets to produce sufficient income to cover your expenses, therefore it would become really straight forward to take career breaks whenever needed.
Higher confidence in the workplace
FU money can give the balls to act in a more assertive way at work. For example, you would have more power to reject unfavourable conditions or undesirable projects when you know that you have the capability to to sustain your lifestyle for a while without being reliant on your monthly pay check. Just knowing this will make you more secure, even when the next recession hits or economic conditions make it necessary for the company to make job cuts. Additionally, FU money gives you the ability to stand up for yourself – there is nothing worse than not enjoying your work while being entirely financially dependent on the employer to pay your way. No need to be scared of the boss at all. The confidence you gain will certainly also put you in a much better position to demand for pay rises in future.
How much FU money do you need
The amount of money needed is actually a personal choice. You could simply multiply you annual expenses by the number of years that you are comfortable with. £30,000 can sustain a person with £10,000 annual expenses for 3 years if the assets are held in cash. When assets such as stock market investments and bonds are used, the time to depletion will vary according to asset allocation. The Vanguard next egg calculator can provide good estimates of how long the fund will last based in withdrawal rate, according to historical market returns.
Take action early
While not being the holy grail of financial independence, FU money is the next best thing. You never know when the next company takeover, department restructuring, stressful period, office relocation will happen or other hazard will come. FU money is more a lot more than just an emergency fund and serves a different purpose. The best thing is to be well prepared for the worst. You want your money to work for you not the other way round. Starting your own business ventures or preferred way of working will also be possible, so this is not just for situations where things are not going well. By starting early, saving and investing wisely you can soon be on the way to bigger things. It is surprising how quickly things start happening once you get on this path.