Do you have enough Rainy Day Savings?
I’m sure you’ve heard about it before. That day when you suddenly get fired or everything goes wrong and you aren’t able to work, the dreaded rainy day. It happens to many people don’t have enough in rainy day savings.
You have to have a plan to ensure that you have enough money set aside so that when things make a turn for the worse, you’re ready and can survive until you get everything in order and can continue working again whether if it means getting a new job or going back to your old one. So let’s talk about setting up your own Rainy Day Savings Fund.
How much is enough for a Rainy Day Savings Fund?
This has been discussed a lot and the consensus seems to be 3-6 months living expenses, not your pay. I think this is a good estimate depending on what kind of credit you have and your risk tolerances.
I personally am saving 3 months worth of living expenses because I’m comfortable using my line of credit and like to put my money to work by investing it things like the stock market so that I have my money diversified in various places.
Using Credit for Your Rainy Day Savings Fund
Credit can mean a lot of things, and before I go any further, never use your credit card as a source for rainy day funds. This is a recipe for disaster. You have to use credit with low interest rates because you might not be able to pay the money back right away therefore if you have one, a line of credit with your bank is your best bet.
However, don’t just rely on credit, you have to have some cash or liquid investments (like T-Bills, money market funds, etc.) so that you have something to rely on when the time comes.
How to save for your Rainy Day Savings Fund when you’ve already got enough on your hand
Sure, we’ve all got bills to pay and you might be thinking that it will be impossible to add to the list of things that you have to pay just to get by. So start small, say $25 per paycheque and build from there. There’s no need to come up with $2,000-3,000 right away. You’re still employed and still have time to build this fund so build your rainy day fund slowly.
Where to Put the Money in your Rainy Day Savings Fund
So you’ve set up a plan. Say $25 per paycheque. That doesn’t seem too bad does it? Make it an automatic transfer from your paycheque so that you don’t even notice it. It’s best to automate transfers so that you don’t get in the way and spend it on something else. Where to put the money isn’t as important as some other investment decisions. Somewhere that is liquid and might pay some interest are the two basic rules of thumb.
Your best bet is a savings account at your bank. See if there are any at your financial institution that pays a decent interest. If not, you could try online savings accounts like ING direct or other places that are well known. Don’t just give your money to anyone, be sure to do your homework.
You can also put your rainy day funds in money market securities or funds. These are mutual funds that are extremely liquid and will give you access to your cash almost as quickly as your savings account. Every bank will give you access to them so talk to a teller or you could always call in to your local financial institution (bank).
Rainy Day in Oslo photo by emrah.erduran on Flickr.
