Rainy Day Fund
Rainy Day Fund
A rainy-day fund is a dedicated savings account reserved for small expenses that are unplanned. Rainy day funds are a strategic account that is solely used for short-term and unexpected costs without impacting your monthly budget.
A rainy-day fund differs from an emergency by the use and size. A rainy-day fund is for smaller unanticipated expenses. An emergency fund is reserved for unexpected events or major life changes, such as a job loss or divorce, that can have severe consequences on your finances. It is imperative to have both in place for your family.
Examples of reasons to use your rainy-day fund
Childcare emergency
Medical/dental procedures
Unexpected auto repairs
Unexpected home repairs
Building a rainy-day fund
Building your rainy-day fund should commence after you have built your emergency fund. Determining “how much” should go into your rainy-day fund is different for everyone. In general, you should keep $500-$2000 in your account. However, you should perform an assessment of “what could go wrong” in your home and build from there.
Once you have determined the amount of money needed to fund your account. Create a strategy to incorporate the funds required within your budget. Be patient, resilient and keep your goals in mind when temptation arises.
Where Should I Put My Rainy-Day Fund?
Your rainy-day funds should be readily available and kept in a savings account. Money markets, savings accounts, and high-yield bank accounts are great options. To keep your finances organized, your rainy-day fund should be separate from your other investments and accounts. That way, you will know exactly how much you have and can pull out the funds when you need them.