Do You Need a Rainy Day Fund?
The first time I ever heard of a rainy day fund, I was a small child who believed it was pocket money surreptitiously squirreled away by my parents to buy me nice things when it rained. Every time the weather forecast would announce an incoming deluge of grey clouds and thundery nights, I would secretly hope that this time it would be enough to crack open the rainy day fund and buy me a new bike.
Alas, the rainy day that features as the prefix to the fund we’re here to discuss is a metaphorical rainy day. The question we should perhaps be asking is “do you need savings for when things go really wrong?” If you don’t know much about how to save effectively, and you’d like some standout reasons to put money aside, keep reading (and check out this Wealthify investment ISA for more information on saving).
The Future is Bright(er with plans)
A rainy day fund gives you options. Yes, technically it is there to help deal with life’s big expenses as and when they arrive, but imagine allowing yourself to spend half of your fund if a full year goes by without having to dip into it. What would you do with that much guilt-free money to spend on yourself? That trip to those overhanging lagoon caves in Mexico doesn’t seem so far-fetched all of a sudden. Those motorbike lessons you want to take and the pond you wanted in your garden … all courtesy of a rainy-day fund that has got your back through the bad times (and through the boring times when you need to treat yourself).
Peace of Mind
If you’ve never lost sleep over money, count yourself lucky. For many people, money has been a major cause of significant stress and sleepless nights at several points throughout their lives. However, a rainy day fund can help you to sleep like a log on a bed of warm and cosy rose petals. It’s important not to overlook the fact that savings can help to remove stress. When we think of stress, we typically think of dealing with the things causing stress (like relationship issues or work problems). But simply knowing that we have the financial backing to change our circumstances whenever we wish can help to reduce the feeling of being trapped in a scenario that we can’t easily influence.
How Much Money Should Be in Your Rainy Day Fund?
The question of how much money to save in your rainy-day fund is difficult to answer. Everybody’s situation is different and our collective financial needs cannot be summed up in a single quotable number.
That being said, it’s easy to round our monthly expenditure and come up with a figure. Next, seriously consider how long you think it would take you to find a new job if you were to unexpectedly lose your current main source of income. Specialist jobs can require months of applications and interviews. All told you may require anywhere from 2 – 6 months of wages in your rainy-day fund to make sure you don’t suffer too harsh a financial setback if you lose your job.