Rainy Day Fund: How Much Do You Need To Save?

Are you prepared to handle a sudden and unexpected expense like a vet bill? If your answer is no, then you need to save for a rainy day fund.

The global pandemic happened, and millions of people across the globe found themselves strapped for cash. Some unfortunate people even lost their jobs, and needless to say, that brings a whole lot of stress and pressure on one’s life.

With so many people living paycheck to paycheck (78% of Americans in fact), every little and unaccounted extra expense can totally mess up their budgets for the week, month, or even year.

So what can you do to achieve peace of mind so that when you get some random expenses you don’t have to go into debt? Well, the answer is simple, you build a rainy day fund, and you should start doing it right away.

Don’t worry though, in this article we’ll go over the importance of having a rainy day fund, how to start saving money for it, and where to keep it.

But first, what is a rainy day fund?

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.

These sudden expenses (while small compared to others) can hinder back most people. The Federal Reserve did a study in 2018 and found out that 40% of Americans can’t afford an unexpected $400 expense.

So don’t wait for the unexpected to happen, and start building towards your rainy day fund as soon as possible. You never know when you will need it.

The benefits of saving for a rainy day fund

benefits of 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.

You’ll also become more aware of your spendings and start to develop a money-saving mentality, always be thinking about the future and working towards your financial goals.

You won’t need to take out a personal or payday loan, which usually comes with high-interest rates that will get you to spend even more than the actual price.

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

save money

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.

While it might not seem that much for some people, this should cover most unexpected small bills such as:

  • Car repairs
  • Home maintenance
  • Pet care
  • Small health issues and checkups
  • New eyeglasses
  • Replacing appliances (a fridge or a microwave for example)

Having a rainy day fund to help you cover these small expenses will help you to avoid going into debt even more.

Rainy day funds vs. Emergency funds

emergency fund

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.

For an emergency fund, you would need to ideally have stashed away about 3 to 6 months of your living expenses.

Some financial experts recommend even more than that, for example, Suzy Orman recommends you save up for 8 months of living expenses in your emergency fund. This gives you and your family a little longer time to better recover and get back on track.

For a rainy day fund, you should aim to have saved up at least $1,000, of course, if you can save more that’s even better. So now every time a non-ordinary expense comes up, you don’t have to go into debt, instead, you can just cover it directly and go on with life.

How to save for a rainy day fund

Save money for rainy day

Set achievable goals

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.

You could easily start a rainy fund just by setting aside $25-$50 every month. The key thing here is that you have started taking action and putting away something, it doesn’t matter how big or how small you start.

With that being said, let’s look over a few ways that you can start saving up for a rainy day fund:

Automate your savings

Have a small amount of your paycheck go directly into your rainy day savings. In this way, you know for sure that you never forget to save, and… you have way fewer chances of spending that extra money on unnecessary stuff if it goes straight to your regular account.

Cut back on drinking

If you enjoy drinking occasionally, you should consider cutting back for a while, until you get your emergency savings sorted out. Those few extra beers or glasses of wine every week can surely add up. Drink more water since it’s healthier anyway and save money.

Eat at home

Sure, eating out is convenient, but eating at home is way cheaper. Even if you might not have the time to cook every day, you could still save a lot of money if you try eating at home more.

You could create meals for a few days in advance, store them in the freezer and just take it out and reheat it for a few minutes when you need to eat.

Sell unnecessary things

Especially if you don’t use those things anymore and they are just sitting there collecting dust.  Not only will you have more room but you will also get to make some quick cash that you can put into your rainy-day fund jar. Check out your attic, garage, basement, and backyard… you probably hoard some stuff there that you don’t need anymore.

Ditch the coffee shop

Yes, this one might sting a little bit, you love the coffee from your favorite coffee shop, but those $5 you spend every day on coffee could make a lot of difference if they were to be put into a rainy day fund.

Instead, you should make your own coffee at home and take it with you so that you can sip on that amazing bean juice all day and save money in the process.

Check out our best money saving tips to learn more about how to save money.

Start saving for a rainy day fund before saving for an emergency fund.

You should start saving for a rainy day fund way before you set up an emergency fund. Why? Well, first of all, it’s easier to achieve saving up $1,000 for example than 6 months of living expenses.

Plus, the chances of a smaller unexpected expense appearing is way higher than something more major like losing your job.

Have a limit

You don’t want to be putting money into these funds forever. Once you reach your goal of let’s say 6 months of living expenses in your emergency funds and $1000-$5000 in your rainy day fund, you should move on and invest your money into other things.

More rainy day fund saving methods

Save up all your tax deductions, bonuses, and gift money and put them into your rainy-day fund or emergency fund.

You can also take occasional side gigs to earn some extra money that can go towards your rainy day fund.

Reward yourself

Don’t forget to also enjoy life and reward yourself with each milestone that you achieve. For example, if your rainy day fund goal is $5000, every time you save $1,000 you could go out for a nice dinner with your loved ones or buy something nice (but not that expensive).

If you don’t make saving fun and enjoyable you will more than likely not stick with it, and quit after a few weeks or months in.

Where to keep your rainy day fund

Savings Account

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

While some might be tempted to keep it in their house, unfortunately, burglaries do happen all the time, so you’d be better off stashing your money into a savings account.

You also don’t want to mix the rainy day funds with your everyday money, so a savings account not only will give you a better interest rate but will also keep you from going into the money for your daily expenses.

Check out how online savings accounts work if you want a more convenient solution to the traditional banks.

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