What is a Rainy Day Fund and Why Do You Need One?
No matter how much we plan, life has a way of surprising us anyway. The car needs a new battery. Your washing machine stops working. We know things like this will probably happen, we just don’t know when. Do you remember your parents telling you to save for a rainy day? Well, this is what they were talking about.
The purpose of a rainy day fund is to put some money aside to prepare you for small, unexpected financial emergencies.
Having cash saved to deal with them lets you handle the expense without using a credit card or other short term loan that could take a while to pay off, costing you even more in interest.
How much should be in a rainy day fund? BrightDime recommends starting with $500 and replenishing it whenever you have to dip into it. You can start your rainy day fund by saving all your change or rounding up all your purchases with an app and saving the difference to a separate account. You can sell things you no long use. Even better, if your budget can handle it, an automated draft to a designated savings account (not a CD or investment account) so that you can withdraw it more or less immediately when you need it.
Think of your rainy day fund as a financial umbrella. You don’t need an umbrella every day but when you do need one you’ll be glad you thought ahead and have it. Your rainy day fund is the same; ideally once you’ve saved it you don’t ever think about it. But when you have to call the plumber, or your car starts making a funny noise you’ll be glad you planned ahead.