Many of us have been there. An unexpected event occurs, such as a flat tire, a car that will not start, an appliance or electronic breaks, and we are left to determine how to pay for it. You do not have to worry too much if you are fortunate enough to have a rainy day fund. But if you do not, you can potentially go into significant debt attempting to make yourself whole again.
It is critical to start putting away a little bit of money every so often for emergencies, although it can be overwhelming. Here is all you need to know about starting a rainy day fund, why it is essential, and how much you may need to get you back on your feet when life kicks you down.
Why Do I Need a Rainy Day Fund?
You may understand that saving money is generally a good idea. But many do not consider saving for potential emergencies as much as they do for things such as vacations or large purchases. While rainy day funds are not as exciting as something to look forward to, they are essential.
Suppose you need to have surgery or a medical procedure you were not expecting. Your medical insurance may cover some of the expenses. Still, you will often have a co-pay or deductible that you must factor in, as well as any lost wages due to time off of work, possible childcare, medication, and more. A rainy day fund would allow you to tap into that money you have saved and use it for this unexpected scenario.
There is also a misconception that a rainy day fund is not necessary if an insurance policy is purchased. Unfortunately, this is not the case. Insurance is an excellent tool for risk mitigation, but there are many scenarios or additional expenses that insurance policies will not cover. For example, insurance will not pay for your car’s everyday wear and tear. So, if your vehicle has a mechanical failure and is no longer running, you will need to come up with the money to pay for its repair or to buy another one. Without a rainy day fund, you may be left without options.
In addition, most insurance policies have deductibles you would be responsible for in the event of a loss. You would need to pay those deductibles before insurance would kick in, making the rainy day funds even more critical when you carry insurance.
How Much Money Do I Need to Save?
How much money you need to put aside for your rainy day fund will vary depending on your regular expenses and unique situation. Although, experts do make the distinction between a rainy day fund and an emergency fund.
In general, rainy day funds are smaller and allow you to have enough money on hand for unexpected events without affecting your budget. Many banks have calculators you can use to determine how much to save. Typically, $1,000 to $3,000 is enough to cover any additional expenses you may incur.
How to Save For a Rainy Day
Understandably, creating a rainy day fund is a lot easier said than done. Many individuals live paycheck to paycheck, and it might be difficult to put any money aside. But the best time to start is now. Even putting a few dollars aside every week is better than nothing. Experts suggest opening a separate checking or savings account for housing this money, and a high-yield savings account is even better.
Over time, you will have some money saved for any potential emergencies!
