Saving for your Rainy Day

Any time you begin saving money or are considering setting money aside for something, you’ll probably hear about advice about saving for a rainy day. Don’t let this advice fall on deaf ears, and as the best budgets and people who are the most financially prepared have money set aside for these rainy days! As such, it’s important to first understand what sort of expenses you’ll be setting this money aside for, and when you should reach into that rainy day fund! In addition, you’ll want to understand how you can save money for this fund without putting yourself in a financial bind somewhere else! Lastly, it can be effective to create some separation between your checking account and your rainy day fund, as this lowers the temptation to spend that money!

When you Should Reach for the Rainy Day Fund

At its most basic level, a rainy day fund is money that you set aside to pay for any unexpected expenses that are larger or more expensive than your typical day to day expected expenses. Some examples of such expenses would be: Replacing/repairing a part of your car, paying off medical deductibles, paying unexpected medical or dental bills. You rainy day fund should consist of somewhere between $1,000-$5,000 and will typically be established prior to establishing an emergency fund. In addition, it’s important to note that a rainy day fund and an emergency fund are not the same thing, and you should not be using your rainy day fund in place of an emergency fund. An emergency fund is money that you have set aside for the instance in which you lose your job or are unable to work and need money to keep you afloat during that time! It’s also important to note that your rainy day fund is not to be used to personal expenses that are a want or desire—not being able to afford the vacation you wanted is not a crisis, and thus should not be something that you use your fund for!

How to Save for the Rainy Day Fund

It’s easy to talk about setting aside between $1,000 and $5,000, but actually doing it can seem rather difficult and daunting! As a result, you may be wondering how exactly you can find additional money to set aside! The first thing to do is just be honest with yourself—there are bound to be things that you spend money on in your life that are things that you want and enjoy, but are not things that you need! Cutting your unnecessary expenses is a best practice for any savings plan, and the same applies to saving for a rainy day fund! For example, you may a subscription that you pay for—be it Netflix, Spotify, etc.—while you may enjoy the advantages that said subscription offers you, it’s not something that you absolutely need, and the money that you save by cutting it out of your expenses will begin to add up!

Separate your Rainy Day Fund

Creating some separation between your rainy day fund and your checking/savings account is a sound strategy if you’re concerned that the temptation to spend that money is too great! There are a number of ways that you separate this money and protect it. It’s important to familiarize yourself with some of the best options, such as a Roth IRA, this option allows you to take out what you put in without penalty and is a great way to protect your rainy day fund! In addition, any investments you make should be cash investments, as the point of this investment is not growth, but rather safety. Another option is a no-fees savings account, as this will allow to recapture lost money without having to pay fees on top of the small amount of money that you’re saving!

Not sure where to begin in your savings journey? Contact Carolina Money Minders today!