It would be nice if you could schedule life’s unpleasant surprises so they wouldn’t be, well, a surprise. But that doesn’t mean you have to be caught totally off-guard if a storm rips off your home’s roof or your car breaks down.
Rainy day funds are intended for just these sorts of situations. Having a stash of cash for job loss, sickness, an economic slowdown or other emergency can make it a lot easier to cope with the unexpected.
Financial experts recommend having three months of expenses set aside in a rainy day fund. But only about 50 percent of Americans said they could have $2,000 available for an emergency in the next month, according to a recent survey by the Financial Industry Regulatory Authority (FINRA). FINRA is an independent, not-for-profit organization authorized by Congress to protect America’s investors by making sure the securities industry operates fairly and honestly.
If you fall into the “unprepared” category, there’s no need to despair. There are lots of ways to create a rainy day fund and keep it going in the future. Here are some of them to consider:
- Start off by doing a review of your monthly bills and determining where you can cut back. Are you buying items that you really don't need or could do without, like a cup of specialty coffee every day? Could you pack your lunch rather than go out to eat while at work? A quick crunch of numbers could reveal a significant savings, perhaps in the range of $50 to $100 weekly.
- Place "extra income" into your rainy day savings account. This could include a raise you get at work. Or, if you paid off a loan for a car or home improvement, that money can go into the savings account instead going forward. It's just like extending the loan payoff time but putting the money to another use.
- Sell stuff that you no longer want or use. Whether it's a yard sale, consignment shop, or going on eBay or Craigslist, there are outlets for unloading items and generating income. Just make sure you check their value before putting them up for sale so you don't get short-changed.
- Speaking of change, save it. This is one of the easier things to do, but it could add up to a significant amount over the course of six months to a year. And you could bump up that number even more by setting aside a buck or two every day in addition to leftover coins.
- Dump a costly habit. If you smoke or drink a little more than you should, cut back or eliminate these vices. Look at it this way - the average price for a pack of cigarettes in Massachusetts is $10. If you go through a pack every two days, that adds up to $150 a month literally going up in smoke.
Give yourself peace of mind and a bit of a financial cushion by establishing a rainy day fund today.