Do you need to have a separate rainy day fund and emergency fund? The answer is yes! Rainy day funds and emergency funds serve different purposes, so it’s important to have both available to tap into as needed. Read on for more reasons why it's a good idea to have both.
Why have a rainy day fund?
Say your washing machine suddenly needs replacing. You’re looking at an extra expense that can run anywhere from $350-$850. Where are you going to get that kind of money? Here’s where your rainy day fund comes in. It’s a savings account created for these small, unfixed expenses that you know will sometimes arise. You’ll tap into your rainy day fund to pay for minor household repairs, to cover the cost of summer camp or to replace your broken kitchen table. When you have a way to fund these small financial hiccups, they won’t disrupt your financial health.
Why have an emergency fund?
In contrast to your rainy day fund, an emergency fund is for much larger expenses. It should have enough padding to keep you afloat even if you experience a major disruption in life, like a divorce, job loss or illness.
How much money should be in each fund?
Your rainy day fund, created for minor expenses, only needs to hold $500-$1,000. That should be enough to tide you over in the event of a small, unplanned expense. Your emergency fund, however, should be positioned to pull you through major financial crises, so it will need a lot more to fulfill its purpose. Ideally, it should hold 3-6 months’ worth of your living expenses.
Where should I keep these funds?
An Ideal CU Savings or Money Market Account is a perfect place for both your rainy day fund and your emergency fund. You can set up multiple accounts for each one. Your money is federally insured by the NCUA and you have access whenever you need it..
How can I build my funds?
One good way to build your savings is to trim your budget. Take a hard look at where your money goes each month and cut back on your spending. Use the money you save to fund these accounts. Another great way is to set up an automatic transfer from your checking account to your savings accounts so your funds grow automatically.