Preparing for the unexpected is a good habit to get into, particularly when it comes to money. Life can throw all sorts at you and play havoc with your finances, so it’s important to build your resilience.
A rainy day fund is a widely recommended concept for most people. In this guide, we’ll discuss what one is, how it can benefit you and how you can start one. Let’s begin!
What is a rainy day fund?
A rainy day (or emergency) fund is simply a pot of money reserved for emergencies or unforeseen circumstances. This could be paying a parking ticket, getting your car repaired or being made redundant from your job.
You can keep cash funds in a physical container or save in a digital pot, depending on your preference. Any amount is better than none, but the more you put aside, the greater the buffer you give yourself.
Technically, it’s just savings but should be kept separate from money you are putting away for another purpose such as buying a house. It’s there to give you funds to fall back on when you need money to pay for something you didn’t budget for.
What are the benefits of a rainy day fund?
Having emergency funds gives you a financial cushion should you need money quickly and unexpectedly. This can reduce stress and anxiety, give you more peace of mind in life and help you to avoid accumulating debt.
Financial stability is important for your overall health and wellbeing. With a rainy day fund, you can jump over life’s hurdles a little more comfortably and without jeopardising your financial position. If you haven’t had one before, you might be surprised at how good it feels to be prepared.
How do I start a rainy day fund?
To start, you just need to create a dedicated savings space to store your money. Something allowing easy access and withdrawals is ideal so you can get your money quickly if need be.
Saving slowly and consistently into your rainy day fund is a good strategy, although if you have the chance to deposit any lump sums, take the opportunity.
If you’re struggling to find money to save, review your spending habits and budget thoroughly to identify areas where you could reduce your outgoings. It can be hard to turn down spending money now versus securing your future, but it’s certainly worth it to help your life overall.
Some may find it useful to create targets, others will just save when they can afford to – how you grow your rainy day fund is up to you. Your future self will surely appreciate anything you can put away!