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How to Start a Rainy Day Fund

Jul 21, 2020

How to Start a Rainy Day FundSometimes life brings unexpected challenges, and even though the circumstances of the situation may be out of your hands, how you prepare and how you react are both in your control. That’s why it’s extremely important to establish and grow your savings should you need to access funds on a rainy day. Many people have special savings accounts dedicated to emergencies, and whether you prefer to call it a “rainy day fund,” an “emergency savings fund,” or a “contingency fund,” these savings can act as a safety net and can even help you stay afloat when you need it most during times of financial turmoil.

Below, we’ve listed some steps you can take to start building your rainy day fund:

Evaluate your current financial situation.

It’s important when getting started with your rainy day fund that you are realistic about how much you can contribute to it. Consider your income, your nonnegotiable expenses (i.e., bills, rent, food, etc.), how much leisure money you’d like to have on hand, and how much you have left over that you can put towards your savings.

Most finance experts recommend that your emergency fund has enough money in it to cover 6 to 12 months of unplanned expenses, as this cushion is meant to keep you afloat should you become unemployed or another emergency arises. However, if you feel that 6 to 12 months is too tall an order, you can start smaller, by saving enough to cover 3 to 6 months of expenses. Or, start with a goal of saving $500, then $1,000, then $1,500, and so on.

If you have high-interest outstanding debt, some experts say you should aim to put at least $1,000, or a month’s worth of expenses, into an emergency fund before turning your full attention to paying off the rest of your debt, so use this as your minimum.

Set up a separate savings account.

If you want to establish a rainy day fund, you’ll want to establish a savings account that is separate from the one you currently have. This way, unless you have an emergency, you won’t need to make withdrawals, and the money can sit and grow with interest over time.

Consider keeping the first three months’ worth of savings in a high interest savings account so you can access it quickly and easily. In addition to the convenience, this type of savings account will give your money the chance to grow right away, which can set you up for success.

There are many different types of savings accounts—higher yield savings, money market savings, certificates of deposits, etc.—so it’s best to connect with your credit union or bank to see which is right for you. PFCU allows you to bucket out and label your savings accounts based on their purpose, so you’ll know which account(s) you should or shouldn’t withdraw from at a glance. Check out PFCU’s wide variety of savings accounts to see which is the best fit for you and your savings goals.

Take it slow.

It’s best when getting started with saving that you set small goals that can be achieved in the short term. This will make your contributions feel more meaningful, as opposed to feeling like you’re falling short of a longer-term savings goal.

If you just finished paying off debt, or a fixed cost like a car loan has faded away recently, put the money that would have gone towards that into a savings account. If you earn a raise, you can also put this money into a savings account unless you need it for something more immediate.

Set up an automatic transfer.

Rather than constantly reminding or nagging yourself to save money, set up an automatic transfer to happen every month, or even every other month. The automatic transfer can be for a small amount, and you can transfer larger sums (of whatever dollar amount you are comfortable with) throughout the month. The goal is for saving to become second nature, and the great part about this feature is you can turn it on or off as you please.

Don’t stop contributing to your account, even if you hit your goal!

It can only help you to have more money in the account, so continue putting money aside even after you hit your initial goal. Your life may change significantly before the time comes when you need to dip into the account, and the amount that once would last you six months may not last as long now.

For example, the savings goals that you set may have been enough to support you in a pinch when you were single and living in an apartment, but they may not cut it if you now own a home, car, or have children. That’s why it’s important to revisit your account and your overall savings plan frequently so that you can update it as needed. Also, if you spend from the account for whatever reason, replenish it! There will likely be another time you’ll need to dip into your savings, even if that day doesn’t come until you’re looking to retire.

Establishing a rainy day fund isn’t an overnight job—it takes time, dedication, and, well, money! Take it day by day, and remember that although you may feel the pinch now, you’ll thank yourself later.


Erin Ellis
Accredited Financial Counselor
Philadelphia Federal Credit Union

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