Skip to main content

InTouch For You Blog

Rainy Day Fund

by Alex Schitter | Apr 05, 2017

Save It for a Rainy Day


April showers bring May flowers, but rainy days can bring big financial headaches.


An unexpected car repair, a trip to the dentist, or a big medical deductible can derail your best laid plans for managing your money. That’s why financial experts agree: you need a rainy-day savings fund. A rainy-day fund helps avert panic – or going into debt – when minor disasters strike.


Financial guru Dave Ramsey recommends saving $1,000 as the first step toward establishing financial freedom. Other advisors say $1,000 to $5,000; you’ll want to be on the higher side if you have a family or own a house.


Keep your fund separate from your other money, and in an account that’s safe and easily and quickly accessible. Having the money in a separate account will reduce the temptation to dip into it for anything other than an emergency.


Financial advisors may use different terminology, but a rainy-day fund differs from an emergency fund – another important, but longer term, savings goal.  While your rainy-day fund may pay for unexpected costs, an emergency fund will keep you afloat for a few months if you lose your job or can't work.


Finding the Funds


How do you come up with the cash for a rainy-day fund? 


One way is to take advantage of “found” money – cash you receive in addition to your paycheck, which you don’t need to meet your monthly expenses. Say Uncle Sam sends a tax refund or your boss pays you a bonus check. Use it for your rainy-day fund.


Or, save the money over the next few months. If you’ve just paid off a debt, like a car loan, you can redirect the money you have been spending on that monthly payment into your rainy-day fund. If your employer gives you a raise, even a small one, set up a separate direct deposit to put that additional income (which you’ve managed to live without until now!) straight into your rainy-day account.


You could even start a jar to stash extra small bills or pocket change at the end of each day. You’ll be surprised how quickly small, daily amounts add up over time. 


If you’re in debt, Ramsey recommends even more drastic measures – selling some of your stuff or getting a second job – to come up with the money to have that rainy-day fund. The peace of mind it provides is worth the hassle.


Another way to build a rainy-day fund: drop a costly bad habit, like coffee or cigarettes. More on that, in our next post.