There are many reasons you may need cash for a rainy day, such as an unexpected bill, an emergency, or a life change that suddenly calls for some new expenses. This fund can be your safety net for shorter-term and lower-cost emergencies. A stash of emergency cash can help pay for things like a doctor’s visit if underinsured, a suddenly sick pet needing a procedure, or car repairs — all financial destabilizers if unprepared.
Starting a rainy day fund doesn’t have to be daunting, as saving money can be done in many ways.
1. Budget for What You Can Save.
To set realistic, attainable savings goals, you need a proper budget. Start by analyzing your monthly income and expenses and determine where you can save. Add up the money you can save to set aside in the emergency fund. Decide how much you need to save based on your circumstances and make a plan to reach that goal financially.
2. Get Rid of Debt.
Debt is the real money pit, as interest rates can be a struggle. Focus on paying it down or even eliminating it to increase your financial freedom. Once your loan is low enough or gone, all those payments you were making toward it can go to a rainy day fund.
3. Cut the Unnecessary.
After determining how much you want in your rainy-day fund, figure out how to make that happen. Cutting out things that drain money and are not necessary is an important part of this step. It includes that afternoon $5 matcha latte you get every day or the streaming service you never watch (or maybe spend too much time watching). By scrutinizing your day-to-day spending, including any automatic payments, you might discover multiple savings opportunities that can make a big difference over time.
4. Get a Side Hustle.
There are many ways to earn a bit of cash on the side. If you have a crafty hobby you enjoy doing, like making jewelry or baking, figure out a way to make money off of it. You can also earn a regular part-time income doing freelance work for a particular area of expertise. When you’re free over the weekend, try delivery services that are popular in your area, as well as services like Lyft and Uber.
5. Set Your Goals.
Whether short-term or long-term, it’s important to have your priorities set and keep them in mind.
Rainy day funds are great for short-term goals like a vacation or a down payment on a car, but they can also be the seed to start doing some serious saving and even planning for retirement. It’s never too early, and you can never save too much. Prioritize your most pressing financial goals while keeping your options open in case your financial circumstances change.
6. Use an App.
There are many financial budgeting and planning apps available online. You can use them to visualize your exact spending per category like travel, dining out, fashion, etc. To cap your expenses in line with your rainy day savings objectives, use the app to set an appropriate budget. Be sure to activate real-time alerts for when you’re getting close to overspending in a certain category.
7. Make it Automatic.
Schedule for your bank to automatically transfer money to your savings after you receive a paycheck.
This takes the stress out of remembering not to spend the funds. It also removes the temptation to spend the money if it’s already in your savings account.
8. In Case of Emergency.
If something happens that requires emergency funds you do not have, there are ways to get cash fast other than a savings fund. One way is an emergency loan. Based on Think Save Retire’s tips for financial emergencies, quick payday loans can save the day if you find a reputable lender. These typically have high interest rates and require low credit scores.
You can apply for an emergency loan online and have the funds deposited in your account in no time. There is also the option of borrowing from family or friends, taking out an additional mortgage, or pulling from retirement funds. However, careful planning can save you from adding this additional stress.
Saving for a Rainy Day
A rainy day fund can help pick up the bill for emergencies that would otherwise be difficult to handle. It’s easy to create it once you’ve set your savings objective. Strategies like cutting unnecessary spending, expanding your income streams, and paying down debts can help.