What’s a Rainy Day Fund? And Why Should You Start One?

A rainy day fund is a stash of savings meant to help you recover from nasty surprises that weren’t in your budget. Why do you need it? What if you don’t have one? How can you start? Find the answers to your questions below.

Why Do You Need It?
A rainy day fund is meant to help you recover from small, urgent and unexpected problems. Think of problems like car trouble, roof leaks, plumbing repairs, appliance breakdowns or urgent trips to the dentist. These are things that you haven’t planned for in your monthly budget and that you can’t ignore to save yourself some money.

Is It the Same as an Emergency Fund?

It’s similar, but not the same. Rainy day funds are smaller versions of emergency funds. A rainy day fund is for unexpected costs that could upset your budget. An emergency fund is often made for major upheavals, like losing a job or getting sick. Financial experts often recommend that you should have enough savings to cover three to six months of fixed expenses for your household. That amount could help you cover essentials for several months without any income.

What If You Don’t Have One?

What if you don’t have a rainy day fund yet and a small emergency happens? You have a few options.

If there’s room on your credit card, you could try to put the expense on there and manage repayments later.

If there’s no room on your card, you could apply for a personal line of credit. This credit option can be useful when you’re dealing with an unexpected expense and you don’t have enough funds available to resolve the problem quickly. In the same way that you would repay a credit card after a transaction, you would repay a withdrawal from your personal line of credit later on. All you have to do is follow the billing cycle.
You could also ask a friend or relative for help. This does carry a different risk than other borrowing options since it could complicate your relationship. If you’re unsure that you can repay them in a hurry, you should consider a different solution.

How to Get Started on Your Rainy Day Fund?

First, you have to decide how you’re going to collect your savings. You could do it the old-fashioned way, with a glass jar sitting on top of the fridge. Whenever you have any spare cash, shove it into the jar.

However, it might be safer to put your money into a savings account. Having the cash close-by could tempt you to grab a few dollars for unrelated purchases. You want your rainy day fund to grow — not to shrink. It would be better to have it out of sight.

Then, you should use one of the top budgeting apps to see how much you can reasonably afford to transfer into the fund every month. If the number seems too low, take a look at your other household expenses to see if anything can be trimmed. Here are some ideas:

⦁ Negotiate lower rates with utility providers
⦁ Use coupons and discount codes when shopping
⦁ Get books from the library instead of buying new copies
⦁ Cancel subscriptions and memberships that you don’t use anymore
⦁ Order takeout less and cook at home more

And finally, when can you put your rainy day fund together? Right now! Look at your budget and get saving.

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