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How to Build Your Rainy Day Fund

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Even if you’re a meticulous planner and budgeter, it’s hard to predict when an unexpected expense will arise. Job loss, medical bills or even car repairs can have a major impact on your finances if you haven’t saved in advance.

Less than half of Americans have a rainy day fund that can cover three-months worth of expenses, according to FINRA Investor Education Foundation, which recommends having three-months worth of savings. The Federal Deposit Insurance Corporation (FDIC) recommends saving three-to-six months of expenses for emergencies, and it recommends placing the money in a separate federally insured savings account to limit access until you really need it.

Although opinions differ on how much you should put away, it’s wise to create some form of financial cushion.

“The less money a person has, the more critical it is to have a financial safety net, as the slightest unplanned event can put you over the edge,” says Gail Cunningham, vice president of membership and public relations for the National Foundation for Credit Counseling in Washington, D.C.

Without a rainy day fund, you might find yourself diverting money from a higher priority, such as your rent, to pay the unexpected expense. Or, you might decide to charge the expense, which adversely affects the budget you created. 

Cunningham says it’s best to sock away at least one month’s income. “This should see a person through most short-term emergencies,” she says.

Your plan for saving

Cunningham suggests diverting a little money from each of your budget categories over time in order to build the cushion you need.

“If you have 10 spending categories such as food, utilities, clothing, etc., try to save $10 per month from each category. That’s a painless way to save $100 per month,” she says. “At the end of a year, you’ll be $1,200 ahead of where you are now.”

Cunningham also suggests banking unexpected windfalls, such as bonuses and raises. Or you could kick things off by saving your tax refund. 

Some people make savings a game with their family, which can be a teachable moment for children, she says. The change you’ve collected over time could be your first deposit into a rainy day savings account.

Mark Butler, director of outreach for in Lehi, Utah, suggests a similar approach. Instead of thinking about unexpected expenses as unlikely possibilities, he thinks of them as upcoming events—and budgets accordingly.

How you build your rainy day fund matters less than your commitment to do it. “I have expenses in the future I have to prepare for,” Butler says. “You just have to acknowledge those expenses are a reality and you bring them into your budget as a line item.”

Losing sleep over your savings (or lack thereof)? An extra shot of espresso in the a.m. only goes so far. Let us help you find the best savings account for you, so you can rest easy.


This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

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