how should rainy day funds be reported course hero

How Much Money Should I Have in My Rainy Day Fund?

The right amount of money in a rainy day fund is different for everyone, but experts suggest $1,000 as a starting point. For instance, $1,000 should be able to cover things like a simple car repair or a new appliance.

What should rainy day funds be kept in?

Your rainy day funds should be readily available and kept in an account that’s liquid, meaning you can retrieve it quickly without any fees. Money markets, savings accounts, and high-yield bank accounts are great options.

Why is it important to save for rainy days?

That’s why it’s important to save while things are going well, so you’re protected when things go wrong. A rainy day fund can help you pay for unexpected bills beyond your normal living expenses. You’ll be at ease knowing you can afford an unexpected bill or two.

How to save for rainy day?

Here are the best ways to save for a rainy day fund: Set up a direct deposit: Create a separate direct deposit so that some of your paycheck goes straight to your rainy day fund. Download an app: Some budgeting apps automatically split your paycheck according to your budget and give you regular savings advice and tips.

How to keep rainy day funds organized?

To keep your finances organized, your rainy day fund should be separate from your other investments and accounts. That way, you’ll know exactly how much you have and can pull out the funds when you need it.

Why do we need rainy day funds?

Why You Need a Rainy Day Fund: How to Prepare for a Financial Storm. Life is unpredictable. Some days aren’t all sunshine, like when your car breaks down or your house needs a repair. These situations happen to everyone. That’s why it’s important to save while things are going well, so you’re protected when things go wrong.

How much is an emergency fund?

An emergency fund is a larger financial safety net — usually equal to three to six months of living expenses. While a rainy day fund tends to be much smaller than an emergency fund, both are crucial to your financial plan.

How to figure out how much to put in rainy day fund?

To figure out how much to put in your rainy day fund, do an assessment of what might go wrong in your life and how much it will cost to fix it.

What is a rainy day fund?

A rainy day fund is money that’s set aside for unexpected and lower-cost expenses, like home maintenance or parking tickets.

What is an emergency fund?

An emergency fund is reserved for unexpected events or major life changes, such as a job loss or divorce, that can have severe consequences on your finances. It’s smart to have both a rainy day fund and an emergency fund.

What do banking reporters and editors focus on?

Our banking reporters and editors focus on the points consumers care about most — the best banks, latest rates, different types of accounts, money-saving tips and more — so you can feel confident as you’re managing your money.

Is Bankrate a strict editorial policy?

Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.

But first, what is a rainy day fund?

A rainy day fund is basically money that you have saved up in advance to cover small expenses that come unexpectedly. For example a car repair or a vet bill.

The benefits of saving for a rainy day fund

You will live a less stressful life, knowing that if something unexpected happens like needing to pay for a vet bill, you got the money to deal with it quickly.

How much money should you save for a rainy day fund?

The amount of money you need to save up is different for everyone, however, most financial advisors say that ideally, you should have at least $1,000 saved up in your rainy day fund.

Rainy day funds vs. Emergency funds

An emergency fund and rainy day fund is not the same, even though they might sound like it. Emergency funds are best used for big unexpected financial emergencies for example: losing your job, having unexpected health issues, a global pandemic, etc.

How to save for a rainy day fund

Many times people set up goals too high and then when they can’t reach those, they quit and fail. It’s the same with rainy funds, you should have an achievable goal for example saving up $1,000 or a month’s living expenses. You don’t need to go too big like planning to save $10,000 from the get-go.

Where to keep your rainy day fund

Ideally, you should keep your rainy day fund into a savings account so that you can easily withdraw money when necessary.

Rainy day vs. emergency funds

Emergency funds, which ideally provide a three- to six-month cushion of living expenses, are reserved for events that can seriously upend your financial life and are harder to anticipate. Divorce, job loss or unexpected medical expenses would fall into that category.

Savings strategies

You can start a separate bank account to build up an emergency fund to cover unexpected expenses. Quick access to that money is crucial.