Rainy-day or emergency funds can be unpleasant topics; they involve preparing for unfortunate or tragic events that can instantly ruin a mood. However, it’s all adults’ responsibility, and proper arrangements for the worst-case scenario should be considered a victory.
Even though it’s a duty, most people struggle to retain or accumulate such funds. This article introduces some empowering tips for starting rainy-day funds and eventually turning them into an emergency fund.
Rainy-day vs. emergency funds
Rainy-day funds refer to smaller savings set aside to cover minor incidents, such as fixing a necessary home appliance. A $500 or $1000 stash can be preserved for this purpose. Of course, this amount can fluctuate depending on your needs. For instance, each car can require different repair costs. Thus, try to adapt the final sum based on your lifestyle. Overall, $2000 can be sufficient to keep as rainy-day funds.
While an emergency fund does reflect the preparation for the unexpected, it aims to help you through more severe financial hardships. That could mean that you suddenly lost your job, lost a loved one, or had a medical emergency. This fund also consists of higher sums, preferably enough to cover your expenses for three, six, or nine months.
Emergency funds are the safest option, providing a bigger security net. However, rainy-day funds are the perfect way to start when you want to save but struggle to do so.
How to start saving for that rainy day
Saving is a task that most people frown upon. Yet, it doesn’t need to be as painful if you consider the following aspects. Then, accumulating enough for a stable rainy-day fund won’t feel as cumbersome.
Set a target and automate your saving
Your goal for a rainy-day fund depends heavily on your lifestyle and needs. Thus, adapt it based on your previous experiences (e.g., how much a car repair or a new appliance usually costs).
Knowing the target lets you plan the period to save that sum. If your goal is $1000, you can dedicate around $90 each month (to save the sum over a year). Schedule automatic transfers from your main account to your savings account for more efficiency. Then, you won’t need to do it manually and won’t be prone to forgetting to make a transfer for a few months.
Define a ‘rainy day’
It’s also essential to establish what a rainy day is (when you can use these funds). Most will refer to minor medical emergencies, lab tests, pet illnesses, appliance or gadget replacements, car repairs, parking tickets, pest control, roadside assistance, etc.
Where to keep your funds
Of course, your rainy-day funds should be separate from your main account. You could open a high-yield savings account that earns interest (or a traditional one with less interest potential).
Consistency
You must be consistent with reaching your rainy-day fund goal. That means saving money each month without interruption. Of course, the unexpected can happen while you are trying to build this safety net. Although consistency is crucial, don’t feel discouraged from taking money from these savings to cover costs. That just means you’ll need to return to the same sum bit by bit.
Earn extra for savings
Time is a commodity, and earning outside your current job can be tricky (or lead to burnout). However, you can explore some options for extra money online that don’t put your lifestyle in disarray or take up all your free time.
For one, you could pursue different personal projects that feel more like a hobby than a job. An example can be a graphic designer who enjoys creating different visuals. You can generate passive income from your previous creations by selling them on Etsy or stock image platforms. Besides that, you can try other opportunities that don’t require much effort, such as sharing unused internet bandwidth or renting a parking spot.
Learn as you save
Your initial goals and strategies could prove faulty over time. For instance, your monthly transfer to a savings account may be too large or small. Thus, adjusting your savings strategy as you go is essential, especially if it becomes too difficult to bear.
You can find financial consultants who can guide you through the process, taking your lifestyle and earnings into consideration. Many government institutions can offer such assistance for free. Thus, don’t hesitate to research and find out whether you can get quality advice from professionals.
Conclusion: turn rainy-day funds into an emergency fund
Your rainy-day fund can turn into an emergency fund over time when you designate more and more money for this goal. It will likely take time, especially if you spend it along the way. However, one tip is not to stop dedicating a portion of your salary to this fund even if you reach your initial goal. By then, you will feel more comfortable saving and can even make an emergency fund your next target.
