rainy-day-fund

Why You’ll Regret Not Having a Rainy Day Fund

Why You’ll Regret Not Having a Rainy Day Fund

As part of a prudent financial budget to take care of monthly expenses, you need to have a rainy day fund. Why so? Emergencies strike when you least expect them, and loading an emergency expense onto a credit card is not the wisest or most practical solution.

In fact, emergencies can run the gamut from a car repair to an emergency room visit to an excessively high dental bill your dental insurance wasn’t created to handle. Ensuring you have a rainy day fund allows you to prevent credit card debt and damage to your credit score.

The Low-Down on Debt Management

Here are some statistics about how people say they would handle an unanticipated expense.

A Bankrate survey reported almost 50% of Americans had to cover a major expense in the past year. Of that figure, 41% told Bankrate they would raid their savings to cover the expense, while 21% would use their credit cards.

An interesting fact is how each generation said they would respond to an unanticipated expense. For instance, the Silent Generation (72 to 91) would put the expense on their credit card. Millennials (18 to 29) were the most fiscally responsible of all the generations surveyed. 47% answered they would look to their savings to pay an unexpected expense. Millennials, who carry the heaviest student loan debt ($1.28 trillion by conservative estimates), have seen their parents dig themselves into credit card debt. As a result, they are more cost-conscious, not wanting to be mired in any more debt. For any generation, putting aside money for a rainy day fund is money well-invested.

Ways and Means to Save for a Rainy Day Fund

To avoid regrets you didn’t put savings into a rainy day fund, here are some financial instruments and strategies you can use to build and maintain rainy day funds:

Roth IRA

The beauty of this method is you can withdraw whatever amount you have deposited without being penalized.

Money Market Fund

The liquidity of a money market fund is ideal if you need to cover an unexpected emergency expense.

Money Market Mutual Fund

Instead of using a standard money market mutual fund as part of your retirement savings, or a separate money market mutual fund, choose a government money market mutual fund.

The reason for choosing a government money market mutual fund is new regulations, adopted in 2016. The risk of your investment return is a possible loss in money market mutual funds. This means your rainy day deposits could be lost. The government money market mutual fund does not fall under the new regulations.

No-Fee Savings Account

Research credit unions and banks in your area looking for savings accounts at those institutions that are not assessed any fees at all.

Found Money

  • Where can you cut back on expenses? You can lower your power bills by using weather stripping, or not run your A/C when you’re away from home.
  • Stop using your credit cards. You’ll save on monthly payments and interest.

All money saved from these simple steps can go straight into your rainy day fund.

Surplus Income

  • Have you gotten a raise? No matter how small, you can add it to your rainy day fund where it will do the most good.
  • Done with car payments, or payments on other expensive items? Plow that cash left over into your rainy day savings. Don’t forget your income tax refund!

Open a Dedicated Savings Account

Have a separate savings account earmarked for a rainy day fund. Therefore, you minimize the temptation to pull from it.

The Piggy Bank Savings Method

Any left-over change in your pocketbook or pants pockets? In it goes to a jar, your piggy bank rainy day fund. You can also pump up the volume by collecting those $1 or $5-dollar bills remaining from a shopping trip. It will quickly add up in a month’s time.

Wasteful Habits Costing You Money

After-work specialty cocktails are what? $10–$12? Cigarettes are costly too at over $5 a pack, and for a light smoker could amount to $10 a week.

Review Your Lifestyle

Take an inventory of all your lifestyle habits. That way, you can see where you can begin to cut back or eliminate them all together. Then, pick a strategy that works best for you. With that, you will be well on your way to that first $1,000 for your rainy day fund. Soon, with some patience, discipline, and persistence, you can reach the $5,000 goal.

That said, don’t get caught unawares by an emergency expense, and start ratcheting up your credit card bill. That will only put you in the hole deeper if you’re already carrying a hefty balance. Instead, be smart and savvy and begin saving to your rainy day fund now.