Unexpected expenses are just that, unexpected. There’s no way to know when something is going to happen and you’re going to be left struggling to pay for it.
The truth is that saving money is not easy, and it becomes even more difficult as your bills begin piling up.
This is why it’s so important to give yourself peace of mind with a rainy day fund. By creating one, you won’t have to worry about how much an accident could end up costing you.
We’re going to cover the following:
- What is a Rainy Day Fund?
- How Much Should Be in a Rainy Day Fund?
- How to start a rainy day fund?
- 5 Tips on How to Build A Rainy Day Fund
What is a Rainy Day Fund?
A rainy day fund is an amount of money you’ve saved in order to help you cover any unexpected problems.
A rainy day fund comes in handy for unexpected expenses like:
- Car repairs
- Medical bills
- Small appliance replacement
- Summer camp
- Replace a door or broken window in your home
- Parking ticket
The purpose of a rainy day fund is to help you cover a one time small expense that comes with an unexpected event. It shouldn’t be confused with an emergency fund, which should be able to keep you afloat for 3 to 6 months in case of a larger setback like job loss or illness.
By having a rainy day fund, you’ll be able to avoid going into debt just to cover some inconvenient expenses that arise from time to time.
Let’s say that your car breaks down and your mechanic quotes the repairs at $400. If you don’t have the $400 already saved, you’re going to need time to get it together. But, without a car you’re unable to get to work, and you fall even more behind on your bills.
If don’t have a rainy day fund prepared, this one event could compromise your entire budget and get you completely off track.
How Much Should Be in a Rainy Day Fund?
In order to determine how much should be in your rainy day fund, you’ll need to consider the type of lifestyle you’re currently leading.
For example, if you have an older pet you should calculate any upcoming or possible vet bills, and make sure your rainy day fund is sufficient enough to cover these expenses.
A typical rainy day fund will be somewhere between $200 and $1,000. In some cases, people might keep up to $2,000 in their rainy day fund for those larger unexpected expenses.
Once you’ve decided upon how much should be in your rainy day fund, it’s time to figure out how much you’ll need to save each month in order to build that base up.
To determine how much you need to save, you’ll need to analyze your budget. Once you’ve done this, you should be able to figure out how much you have left over each month. This amount will be what you’re putting towards your rainy day fund.
Let’s say that you work out your budget, and you have $75 left at the end of the month, and you’re trying to create a rainy day fund of $1,500.
Divide $1,500 by the $75, and you end up with 20. That means that if you continue saving at this rate, you’ll have your rainy day fund ready in 20 months.
If you’d like to achieve your goal sooner, you’ll have to make cuts in your budget.
The average American is #spending far more on the weekends than they are throughout the week.
However, if your financial goal is to get out of debt, your weekend binge spending is probably hindering those goals. Help curb your #weekend spending. 💪 https://t.co/UGu69fUwqs pic.twitter.com/2a7iAbIQj9
— Get Out of Debt (@getoutofdebtcom) February 22, 2019
How to start a rainy day fund?
You can always save your money the old fashioned way, in a jar or piggy bank. But with all the different options out there that will help make your money grow faster, you should consider some of the alternatives.
You might want to start by opening a savings account in a bank or credit union. Choose an account that lets you withdraw money easily in the event that something unexpected happens, and you need to access the money quickly.
Also be sure to double check the penalties and fees associated with a withdrawal from the account.
Or, you might want to consider a high yield bank account, or money market account. Both of these are great options when it comes to getting more for your savings.
No matter which way you choose to go, be sure you’re committed to your savings plan. To make it easier, set up automatic debits that’ll transfer your money every month, without you having to think twice about it.
Saving for a rainy day fund isn’t an exciting thing to do with your money, but the reality is that if you are hit with an unexpected bill, you’ll be happy you took the initiative in the first place.
5 Tips on How to Build A Rainy Day Fund
1. Make A Budget
Sometimes we get carried away with superfluous purchases and don’t take the time to create a proper budget. Doing this will allow you to know where your money is going, and how much you have left for other financial moves.
In order to save, you’ll need to create a budget. You might think that you just simply don’t have enough money to put some towards saving, but you might be surprised when you sit down and analyze your income vs expenses.
Often times, we spend more on insignificant everyday items than we realize. But creating and sticking to a budget can help you limit these unnecessary purchases.
2. Cut back on expenses
Cutting back on unnecessary expenses is one of the first ways you should free up some money for your rainy day fund.
If you notice that you don’t have room in your budget for savings, look at cutting back on some of your expenses to make the necessary room.
- If you’re currently using premium cable, switch to basic.
- If you go out to eat multiple times a week, cut it back to one.
- Cancel your gym membership, and take advantage of the hiking trails by your house.
No one wants to give up these daily luxuries, but it’s worth it when you’re preparing a rainy day fund.
You might even find some inexpensive hobbies that you enjoy more!
3. Store your spare change
You’ll find spare change hiding all over the place if you just take the time to look.
Check out places like your:
- night stand
- or even the floor
Spare change is hiding everywhere! So when you find it, start saving it.
You might even want to open an account that rounds up your purchases to the nearest dollar and transfers that money to a savings account. This way, you won’t even have to think twice about collecting and saving your spare change!
It’ll be even more fun for you if you can get your entire family involved. Explain the benefits of a rainy day fund to them, and see if you can get them on board.
If you can, start with everyone putting in any single dollar bills they have left at the end of the week.
Here’s the catch!
If someone doesn’t have any $1 bills left at the end of the week, they’ll be penalized by putting in whatever bills they do have in their wallet. So instead of $1, you could be contributing $20!
You’ll see how this all starts to add up in no time, especially if you’re lacking $1 bills at the end of the week. In just a few months, up to a year, you’ll have build yourself a nice rainy day fund.
Does the word budget send chills up your spine? 😰
— Get Out of Debt (@getoutofdebtcom) February 12, 2019
4. Save raises or bonuses
When you get some extra money from a raise or tax return, it can be tempting to go out and spend it all. But, remember your financial goals.
Yes, it’s fun to go out and have a great time, but you also need to focus on saving.
So when you do come across more money, factor it into your budget and see where it’ll benefit you the most.
Once you’ve built your rainy day fund, you can use that extra money to:
- Pay off debt
- Save for retirement
- Start an emergency fund
- Save for something fun, like a vacation
5. Sell items you don’t use or need anymore
We all have material items we are attached to that are just collecting dust in our homes.
It’s time to let go and make some money! Not only will you come out of the deal with extra cash, you’ll also free up some space in your home.
There are many avenues you can use to sell your things online, nowadays.
You can use:
- Facebook market
- Offer Up
These are just a couple of the options out there, so get up and start listing your items!
And now that you’ve decluttered, be careful not to fill your house up with new unnecessary purchases!
How many times have you bought something and never used it? Stop making impulse purchases and only spend the cash when it’s absolutely necessary.
Saving money is never easy, but all you need is a little bit of a strategy to tackle your goal of starting a rainy day fund.
Once your rainy day fund is in place, your mind will be at ease knowing you have cash set aside for any unexpected events that could occur. It’s a sense of security that you cannot beat!
Do you have a rainy day fund in place? Let us know in the comments!
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