Rainy Day Fund

What is a Rainy Day Fund?

With rainy day funds, it’s meant to cover unexpected and occasional smaller expenses.

For example, your tire blew, or the furnace broke, and you need to fix it. You can think of it as a type of emergency fund, but typically, you’ll have saved a smaller amount for one-time unforeseen events.

How Much to Save in a Rainy Day Fund?

Save at least $500 in a liquid account with your primary financial institution so the cash is immediately accessible. I tend to recommend people save at least the amount of their car insurance deductible. If the deductible is $1,000, then the goal is to save that amount.

The fund can help you avoid using credit cards for unplanned expenses. It provides you with peace of mind and quick access to cash to set things right. While a $300 repair to your car may not seem like a lot, it can throw off your monthly budget, creating a ripple effect on your finances.

How to Start a Rainy Day Fund

  1. Open a savings account with your existing financial institution and title it Rainy Day Fund.
  2. Transfer $500-$1000 into the account or automatically transfer each payday until you have reached your goal.
  3. You’ll want to replenish the account after using the money in the fund.
  4. Review and revise your rainy day fund requirements. As your life and finances change, you’ll want to ensure your fund reflects those changes.

Remember that you’ll need to factor this “expense” into your budget.

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