A rainy day fund can be your fair feather friend
Mention a “rainy day” fund and immediately thoughts of broken dishwashers or car repairs come to mind. Just like we can’t always predict the weather, we can’t always predict when smaller, unforeseen emergencies might happen in life. A rainy day fund can help take the stress out of those situations and help you bridge the gap to your next paycheck without putting you in debt.
While rainy day funds are useful for covering life’s little unexpected emergencies like new appliances or new tires, they can also help you learn how to save for smaller occasional expenses that aren’t always gloom and doom. Maybe your rainy day savings will cover your unexpected invite to a destination wedding or a fun concert of your favorite band that was just announced. Rainy day funds can be an effective way to learn how to save for unexpected expenses in life…whatever the weather.
Before you start a rainy day fund, first figure out your savings goal. Would $1,000 to $1,500 cover most of your smaller emergencies, or do you have bigger things looming down the road like a new furnace or a big vacation? If so, maybe you want to reach for $3,000 or more.
Next, open a designated account for it. You’ll want your rainy day savings to be “fluid” or easy-to- access without paying a penalty so that you can get to it when you need it. The best option for this would be a high yield savings account or money market account. Search for one that is free to open and comes with a good APY or annual percentage yield so that you will earn interest on your savings.
Finally, start adding to it. Just like rain drops, small amounts of money can add up over time to help your savings grow. Here are four fun and easy ways to help build your rainy day fund:
1. Save the excess change from every purchase.
Every time you spend an uneven amount, take the change from it and put it in a jar. If you use a
twenty dollar bill to buy lunch, but it only costs $8, put the $12 in the jar. If you use a five to buy a
pack of gum that cost $1.50, put the change in the jar. Once the jar reaches a significant amount,
deposit it in your account. You’ll be surprised at how fast it adds up.
2. Save every five-or ten-dollar bill.
Pick a denomination and every time you come across that bill in your wallet or from your spending change, put it in an envelope. Whether it’s Abraham Lincoln or Alexander Hamilton, those faces will add up fast and you’ll have an easy way to save for your fund.
3. Try a No Spend Challenge.
If you are up for a good challenge, pick a day, a week, or even a month and try to live as free as possible. Look for free entertainment, only eat at home, limit your shopping to only basics, ride your bike to work. Come up with a catchy slogan if it motivates you like “No Spend November” or “Free Living Friday” and leave reminders on your mirror, in your car and in your wallet.
4. Make it automatic.
Ask your bank about automatically transferring a small amount from your account each week into a savings account. Even twenty dollars a week adds up to over $1,000 in a year. That’s just one less pizza or a few less Grande lattes a week. Many banks will also round up debit purchases and place the extra into your savings account. When it’s automatic, you won’t even miss it.
5. Adjust your thermostat.
According to the Department of Energy, heating and cooling account for 48% of home energy consumption. It is an estimated savings of up to 10% if you turn it back 7 to 10 degrees from your normal setting for eight hours a day.1 So grab a fuzzy blanket or sweatshirt and turn the heat down in the winter. In the summer, wear lightweight clothes and try using a ceiling fan and turn your AC up. It’s a little sacrifice that can add up to big savings.
Choose one or two of these savings strategies or come up with your own creative ways to save and change them up to keep it interesting. Just like that your Rainy Day Fund can grow to be the umbrella you need to build a little financial security in your life. You may even decide that saving is fun because you know every cloud – even rain clouds – have a silver lining.