So, you’ve meticulously budgeted out your income, guaranteeing that you feel great. Then something pops up that isn’t in your budget. This is why you should save for a rainy day. This money is often referred to as rainy day savings.
But what is it, and how much can you save? We’ll explain all of the details and how you can save for rainy days too!
What are rainy day savings?
Rainy day discounts are savings that apply if you have not yet paid for small, one-time purchases that you did not expect. Unexpected costs, like repairing your water heater when it breaks after hours, can be a burden.
They may be pleasant surprises, like a friend who announces an upcoming destination wedding in Bali. Rainy-day discounts can cover these short-term, unpredictable expenses without harming your long-term budget. This is why saving money for a rainy day is beneficial!
Rainy day savings vs. emergency fund
Having rainy day savings is about saving for unexpected expenses that are not related to financial disaster. They are like the first stage or the foundation of your emergency fund.
An emergency fund supports you if you lose your job, a family member has a medical emergency, or other significant expenses arise. Emergency savings are smaller, while your expenses should cover about 3 to 6 months of living expenses for your family.
A rainy day fund is nearly unrealistic-you are saving up money in anticipation of a potential future issue or problem. An emergency escrow account is your worst case scenario preparation, which you never want to need to use.
Regardless of this, having a source of income to draw from without accruing debt will give you freedom to deal with unpredictable costs and circumstances.
But what about rainy day savings vs. sinking funds?
Think of sinking funds as a larger-scale rainy day fund for much larger expenses. A sinking fund is also for a specified expense and can be broken up into categories such as a for a wedding or saving up for Christmas.
So, if you have these upcoming expenses, you can plan ahead for them accordingly. You need to consider smaller unexpected expenses when saving money for a rainy day!
Did you know that state governments have their own rainy day funds? Indeed they do. And if they do, then you should, too!
How much should you save for a rainy day?
It’s important to save money today. It’s also a good idea to have a rainy day fund, which can be useful for dealing with unforeseen expenses. Having cash saved up can also reduce stress related to financial issues.
Generally, you should aim to save $500 to $2,500 in rainy day savings, depending on your lifestyle and how you want to feel.
How to save for a rainy day
Considering the potential savings in emergency situations, setting aside money for rainy day savings is simple and straightforward.
1. Open a dedicated rainy day savings account
A great way to save for a rainy day, is to set the goal of saving even if you are not currently in a position to afford to do so. By opening a specific rainy day fund, you’ll have a reminder of how prepared you are, or where you still need to save. Most online accounts are free to open, so you don’t need to worry about having an initial deposit.
2. Build your rainy day savings plans into your budget
Before saving for a rainy-day fund, you must consider your existing income and expenses. You will have to reduce your other budget line in order to feed this new rainy day fund. Then, determine how quickly you’d like to generate this fund.
Suppose you want to save up $500 in three months. So, $500 multiplied by 12 weeks is $41.67 per week! Break a huge goal down into smaller goals, which will make it much easier to achieve. Incorporate rainy day savings in your monthly budget as a bill as you do so.
3. Start with what you have, no matter how small
When saving for an emergency, it’s important to decide how financially prepared you want to be. Setting the amount you need to cover your expenses aside enables you to react quickly if something unexpected occurs.
If you possess a malfunctioning appliance in your residence, you should focus on saving more cash and developing your savings more quickly as your “rainy day” might be coming very soon and could be very expensive.
No matter how much you set aside, every penny really does matter. For every dollar that you contribute to your emergency savings account, you will be that much more relieved when you see an unexpected expense come in.
4. Focus on building the habit and consistency of savings
Saving money is easier the more you do it. Imagine this: You eat in one Friday per month rather than going to your favorite restaurant with the most delicious appetizers. Instead, you saved that $30 in your wallet for a rainy day fund. By the end of the year, you’ll have $360 in savings after little effort.
Then, when your fan belt breaks, you will be able to get it repaired and feel comfortable again. And because you’re thrifty, you will keep your rainy day fund well-stocked even when you use some of it up.
Saving things indefinitely more than you can save is a bad idea. It’s better to set a little aside regularly than to be caught unprepared. It is easy to remain consistent by automating your savings account.
5. Ramp up on saving more when your financial situation improves
Whenever you can save money frequently, be sure to take a look at your situation periodically.
With a big change on the horizon, like starting a business or planning a move, determine how that will affect your finances and your rainy day requirements.
If your shifts are shortened at work or your freelance work dries up, evaluate whether your emergency needs are being met and if you should temporarily cut back on saving on rainy days.
There is no correct amount to save it all depends on whether you want to save and increase your wealth as your life and income ebb and flow.
6. Try a money-savings challenge
We’ve said it before and we will continue to say it. Saving money is easier if you make it as fun as possible. Rather than viewing it as a chore, attempt an exciting money-savings challenge instead! There are dozens of different money-savings challenges to choose from that can help you save for a rainy day much faster.
For example, there is the $5 savings challenge where you save every $5 bill you get. There is also the maximum temperature savings challenge in which you save based on what the hottest temperature is in your state that day. If it’s 90 degrees, you can save $90. This money can come in handy if you need it in a hurry.
The idea is that you choose something you find enjoyable and something you will maintain. You can try a new one each month if you like!
Save for a rainy day and prevent financial mishaps!
Save money for a rainy day so you aren’t left penniless when it rains. Your rainy day fund is the umbrella that protects your financial security when faced with financial uncertainty.
Be ready for any opportunity that may present itself, and when an unexpected expense makes you poorer, remain levelheaded and take it in stride. Start preparing now for a last-minute emergency and you’ll never wind up without sufficient funds.