What is a rainy day fund, and how does it work?

It’s more important than ever to get started on building a rainy day fund. Why? You never know what’s around the bend. If you ever lose your primary source of income, need to pay a large medical bill, or encounter unexpected home repair costs, you’ll need a rainy day fund to keep your life on track and avoid going into debt. Having a savings account designated for emergency expenses can also be helpful to cover smaller disasters like a basement flooding or a fridge on the fritz. 

But how can you get going on building an emergency fund? Here are helpful tips to saving money for a rainy day fund.

1. Set a Goal

Decide what you want to save for. Maybe it’s a house, car, or vacation. Maybe it’s a new phone or computer. It doesn’t matter if it’s big or small—it’s still important to set a goal. It may even be helpful to write down the goal and put it somewhere you’ll see it often so you can remember why you’re saving. Learning how to set financial goals is an essential first step in identifying your savings objective and creating a plan of action so you can start to save today.

2. Create a Budget

Budgeting doesn’t have to be difficult or complicated, and budgeting can be a good way to figure out how much to put toward a rainy day fund. If you create a simple budget, you’ll better understand how to control your spending, so you don’t spend more money than you have. With a budget, it’s much easier to see where your money is going and identify areas where you can improve. You may be surprised to see where your hard-earned money is going!

3. Free Up Extra Cash

Want some more tips to saving money? This one won’t seem as fun, but try to look around and see if there are areas to cut costs. You’ll probably find some areas where you can save a few bucks. Eating out less, canceling a gym membership you don’t use, or even switching to an online bank to avoid fees can easily free up $100 or more per month toward your goal.

4. Start Saving

At first, it may be difficult to find ways to save, and it may feel like you’ll never meet your goal. But don’t be discouraged. Financial experts recommend having a rainy day fund equal to three to six months of your annual household income. If your family relies on just one income, you might want to try and set aside an additional 20% more. Start small and then work your way up to your goal.

5. Make Saving a Priority

Saving in general and saving for an emergency should always be a priority. Savings take time to build up, especially if the money is for a house or a car. If you want saving to become a habit, you can’t wait until the end of the month to see what money is left over. The key is to proactively put money away on a weekly or even daily basis. 

When you get your paycheck, don’t pay someone else before you pay yourself. Make your savings your number-one priority and you’ll start to see progress toward your goals. Beginning to save is a key characteristic of any successful financial plan, so don’t wait—start saving today. Busy lifestyles and various expenses can make saving money difficult, but a rainy day fund can go a long way to reducing financial stress for yourself in the years ahead.

You can’t plan when the car will break down or the basement will flood, but you can be financially prepared when they do. Learn more about how a savings account can help you plan for unexpected expenses.

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