You’re driving down the road when all of a sudden, your tire pops. You pull off on the side of the road so you can put the donut on. You know you can’t rely on the donut for too long, but you don’t have the money in your banking account to pay for a new tire.
This is why you should always have a rainy day fund. It can really help you out in situations like this, but what is a rainy day fund? We’ve got all the answers you’re looking for here and more.
Keep reading this financial guide to learn how to plan for all of life’s unexpected events.
What Is a Rainy Day Fund?
It’s money that can act as padding for unexpected events in life. If you experience a life-changing event like a divorce or you lose your job, your emergency fund will keep you afloat.
This being said, your rainy-day money is for big events and nothing else. If you take out cash every time you want to go on a shopping spree, you’ll never save up enough to mean anything.
Why Have Emergency Money?
Now you might be asking, is saving the money necessary? Holding on to a bunch of cash in your savings account for events that might not ever happen might make you feel paranoid, but it’s helpful.
Like in our example at the beginning, you never know when you’re going to run over a nail and pop a tire. If you own a home, things break all the time. You may rip a workshirt and need to buy a new one.
Many people would say that’s what a loan is for, but there are two problems with that. For one, you can’t guarantee that you’ll get a Plenti loan. For two, you don’t want to put yourself in debt to fix a little fender bender.
How Much Should You Put In the Fund?
For the most part, your rainy day fund is for small problems like a broken kitchen appliance. You’re fine to keep it at about $1,000 and put back what you take out later.
As far as an emergency fund goes, however. This is a little different. You’ll want to keep at least 3 months’ worth of savings in there at all times. This will hold you over in the event you lose your job or someone you love has to go to the hospital.
Where to Keep the Funds?
There are plenty of places where you can keep your emergency money. Most people take out a savings account. You can also use an online banking option.
Whatever you do, though, make sure that your money isn’t easy to access. If it is, the temptation will always be there to pull out of it when you don’t feel like cooking.
Our advice would be to start up a savings account at a bank that’s not your main one. This will make it a little more difficult for you to get your hands on it, but you’ll still be able to use it to pay a doctor or mechanic.
Getting Your Fund Going
Alright, it’s time to get the ball rolling with your rainy day fund. You’re going to need a small chunk of change to begin the saving process. There are three ways that you can go about getting it.
Get a Side Gig
If you have a little time to set up your savings account, you can build on it over time by getting a side gig. It doesn’t have to be anything substantial.
You can babysit the twins down the street on the weekend or do a few DoorDash orders in the afternoon when you’re done with your 9-5.
Sell Your Old Things
The fastest way to get emergency money is by selling things that you don’t use anymore. Dig through your closet and pick out the clothes that don’t fit you.
You don’t need twelve pairs of shoes. Grab the ones that you don’t wear that often and get rid of them in a garage sale. If you have any electronics that are gathering dust, clean them off and find a buyer. People will pay a lot for game consoles and old laptops.
Use Your Taxes
This is another case of “if you can afford to wait.” You should get a tax return at the end of the year. You can either put the entire thing in your savings or do half and half.
Put half of it in your rainy-day fund and use half to have fun and get a few things that are on your wishlist. You deserve to reward yourself every now and again, right?
Tips for Maintaining Your Fund
So, you’ve started your rainy day fund. Now’s the little matter of maintaining it. The temptation to pull from it is always there, so keeping up with it isn’t as easy as it seems.
Create a Budget
The first step of maintaining your rainy day fund is to create a budget. Sit down at your kitchen table and calculate how much you spend on bills and groceries each month. All the money you have leftover after that is your budget.
You can afford to put that much in your savings account without cutting into your necessities. You can choose to pour the entire thing into it or only do $100 now and again. Both options will make a substantial difference.
Your Emergency Fund Is Not a Piggy Bank
Your rainy day fund is not your own personal piggy bank. You can’t pull from it every time you feel like taking a vacation or if you want your hair and nails done.
All it takes is borrowing from yourself once to get into the habit. One take-out order turns into three and so and so forth. Don’t let yourself get into this cycle.
Make It Automatic
You tell yourself that you’re going to put money in your savings with this paycheck, but instead, you spend it all on something else. This is fine to do once, but if it becomes a habit, it might be a good idea for you to automate things.
You can set it up where a small portion of your checking account gets sent to your savings when you make a deposit. You may even be able to cut out the middle man and ask your employer to do it for you. Over time, you won’t even miss the money that gets sent into savings because you’ll begin to budget around it without realizing it.
Make Some Life Changes
The more money you have in your pocket to put into your rainy-day fund, the better. You may need to make a few life changes if you want to be able to save and still have some cash to spend on yourself.
Stop eating out as often and cook at home. It’s better for your body and your wallet. This no eating out rule also applies to your morning cup of joe.
Prepare a coffee at home and take it to work with you in a to-go mug. When you need to shop for clothes, consider going to a thrift store. You can find some great, brand-name stuff for low prices.
Ditch your gym membership and stay in shape by jogging before work each morning. Save cash on your groceries and other necessities by clipping coupons.
Set a Goal
If you have an emergency fund saving goal to shoot for, you’ll be more likely to save the money. Take a minute to think about how much you want to add to the account each month.
If you make your quota, do a little something nice for yourself. This gives you something to look forward to if you meet the goal set out in front of you.
Don’t Slack
The last piece of advice we have for you is to not slack off. Just because you met your minimum savings goal, doesn’t mean that you should stop putting money toward your emergency fund.
If you want to slow down a little, that’s fine, but you should always keep your account topped off. The minute you don’t is the minute you let your savings flush down the drain.
Be Prepared for All Life’s Emergencies
What is a rainy day fund? It’s emergency money saved up by you to be used on all of life’s emergencies. You never know what’s going to come up. It’s better to be prepared for the worse than having to take out a personal loan to fix your car or cover a hospital bill.
Start saving today, and if you find yourself needing more tips to keep up with your money, visit the Financing section of our blog!
