Easy Steps For Building a Rainy Day Fund


Life is unpredictable and full of surprises. Like when your car breaks down or your house needs a repair or when you fall skiing and need to get expensive surgery. These situations happen to everyone and sadly in 2020, it seems like a frequent occurrence. So it’s important to set money aside while things are going well, because at least if things go wrong, you’re prepared to deal with them financially. A rainy day fund can help you pay for these unexpected expenses.

Having some money saved for a surprise bill will give you peace of mind that you can afford to fix the issue without charging it to a credit card or taking out a personal loan. Both of these charge interest making the unexpect bill even more expensive.

What Is a Rainy Day Fund?

A rainy day fund is monies that you have set aside for expenditures that are outside of your normal living expenses. The idea is to use a rainy day fund for one-off expenses, such as a car or home repair, an unexpected medical bill, or that new phone you had to buy because you broke yours and never insured it.

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THIS IS NOT the same as an emergency fund. While also very important, an emergency fund is monies that you have set aside in case you lose your main source of income. An emergency fund is essentially the same as a rainy day fund but a larger amount of money so that you can continue to pay bills while figuring out a new way to bring home the bacon.

These two funds should be SEPARATE funds and an emergency fund should only be used in the scenario that you lost your main source of income. Having a rainy day fund will allow you to stay financially secure without having to tap into the emergency fund.

How much should you set aside for Rainy Day Fund?

The right amount of money in a rainy day fund varies for everyone. The cost of repairing a pipe leak in Manhattan will cost more than one would pay for the same service in Raleigh, North Carolina. Experts suggest $1,000 is a starting point for the average rainy day fund. In most instances, $1,000 should be able to cover things like a simple car repair or a new appliance.

In a perfect world, your rainy day fund would equal the highest amount you can expect to pay for an unexpected bill. If your health care deductible is $1,500, you’ll want to keep at least that much in your rainy day fund. Car repairs also vary in price, but common fixes on the brakes or alternator cost between $400 and $700. In my opinion, there is nothing wrong with continuously adding to your rainy day fund just in case you happen to have the misfortune of two unexpected bills in a short time period. Better safe than sorry!

How to Save for a Rainy Day Fund

Fortunately, are easy to build as long as you stay disciplined and are willing to get creative when cash is tight. First, you need to build a budget or adjust your current plan to contribute to a rainy day fund.

Knowing how much free cash you have available to you will let you maximize how much you set aside and reach your goal faster. Here are the best ways to save for a rainy day fund:

  • Set up a direct deposit: Create a separate direct deposit so that some of your paychecks go straight to your rainy day fund.
  • Download an app: Some budgeting apps automatically split your paycheck according to your budget and give you regular savings advice and tips.
  • Transfer cash monthly: Set up an automatic transfer that occurs once a month. For example, you may want to transfer $50 per month from your bank account to a money market fund.
  • Create a rainy day fund jar: Throw your spare change into a jar or piggy bank. While your fund will start out small, it will build over time and is easy to access.
  • Replace some discretionary spending: If you normally have a latte in the morning, order take out for most meals or shop for new clothes every month, consider scaling back for a few months. Place that discretionary money in your rainy day fund until you reach your goal.

Where to put your Rainy Day Fund?

Your rainy day funds should be readily available and kept in an account that’s liquid. This means you can retrieve the funds quickly without any fees. Money market and savings accounts, as well as high-yield bank accounts, are great options. Most major banks and regional banks offer at least one of these options.

Additionally, it’s important to keep your finances organized. Your rainy day fund should be separate from your other investments and accounts. This will make it easy for you to know exactly how much you have and can pull out the funds when you need it.


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