Building your rainy-day fund
You can't predict the future, but you can plan for it. Building a rainy-day fund creates a backup plan for life’s uncertainties.
You can't predict the future, but you can plan for it
Your first goal for active saving should be to set up a rainy-day fund, ensuring you’re ready for anything that life throws your way.
This fund covers things like medical emergencies or replacing a broken phone. It could also create freedom in life for things like changing jobs or exiting a bad relationship - For this reason we suggest you always maintain your own personal emergency fund even when you’re in a relationship where finances are shared.
To avoid the temptation to dip into your rainy-day fund for non-emergencies, set up a separate savings account for it and consider using a different bank than your primary accounts.
How much should you save in your rainy day fund?
This depends on your personal circumstances. If you’re single and renting, you’ll need less than someone with a mortgage or a family. Ask yourself these questions:
What are the things that you (and those that depend on you) couldn’t do without, and what could go wrong with them? For your health, you may become ill and need hospitalisation or if its your car, it might break down.
What is a reasonable amount to set aside to ease the financial consequence if something went wrong?
A common rule of thumb is to save enough for three months of expenses, however if this is unrealistic, an amount like $1,000 (around $20 per week for a year) is a good start to build upon.
Using your rainy day fund
When genuine emergencies arise, it’s time to use your rainy-day fund. Don’t hesitate because of the effort it took to save – the fund’s purpose is to reduce stress during challenging times. When things are back to normal, begin rebuilding your fund with a regular automated transfer. Reflect on whether the funds were used for a genuine emergency, or an unexpected expense that should be included in your spending plan in the future. For example, vet fees because your dog became ill could be something to add to your ongoing spending plan as chances are it is likely your dog may become unwell in the future, especially if it is an older dog.
By actively saving and maintaining a rainy day fund, you’re creating a solid backup plan for life’s uncertainties, helping you to manage stress and maintain financial stability.
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