Many people have emergency funds which covers 3-6 months of living expenses in case of an emergency like job loss or illness. But a rainy day fund is different. A rainy day fund is designed to cover small, unexpected, one-time expenses.
Rainy day fund to the rescue
A rainy day fund covers unexpected expenses like an appliance repair, broken window, or in my case last week, new car tires! It also allows you to cover the expense without dipping into your emergency fund, charging on your credit card, or having to take out a personal loan. While a few hundred dollars for appliance repair, new tires, or a broken window won’t break the bank, they can throw a kink in your monthly budget- especially if you are living on a tight budget already.
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This past week, my rainy day fund came to my rescue. My car is due for inspection this month, and they told me my car wouldn’t pass inspection without new tires! Yuck! I had to spend $600 on new tires, but it didn’t cause me financial stress because I was able to pull the money from our fund.
Your rainy day fund should be cash that is quickly and easily accessible so you can grab it when you need it. Rainy day funds are intended to cover unexpected expenses so you must be able to access the money 24/7.
how much should i save?
There is no set amount for a rainy day fund. To determine how much you want to save, think about any upcoming or future expenses that you may have. Will your car need new tires soon? Will your child/children need braces in the next couple of years? Are certain appliances getting older?
Based on your individual circumstances, determine how much you would like have in your rainy day fund and set a date to have it completely funded. Think about how much you can realistically set aside each payperiod or each month to put into your fund. How quickly, with that savings amount, will you be able to reach your goal?
For example, if you want $1,000 in your fund, and you have $200 to set aside each month, it will take you five months to be completely funded.
add your rainy day fund to your monthly budget
Be sure to include the money you are saving for the fund in your monthly budget. The money you are saving should be a line item under expenses since you are “spending” that money by allocating it to your rainy day fund. Keep it as a line item under your expenses as long as you are continuing to add money and grow your fund. Once you have fully funded your rainy day fund, you can allocate the money you were contributing to the fund to something else!
how can i grow the fund faster?
If you won’t be able to save enough for your rainy day fund as quickly as you’d like, look for ways you can reduce other monthly expenses which would then allow you to save more and reach your goal quicker. Can you reduce your number of gourmet coffees each day? Reduce the number of times you eat out? Carpool to work and reduce your gas expense?
It may not be fun, but those small sacrifices will enable you to reach your savings goal much quicker and reduce your chances of having a financial burden from an unexpected expense.
expect the unexpected
No one likes those surprise expenses that pop up at the most inconvenient times. But a rainy day fund can help reduce some of the burden from these unexpected expenses and prevent you from taking on more debt.
