Saving for a Rainy Day: Put your money away just in case

Everyone should commit to saving even a small amount monthly.

Saving for a Rainy Day

PUT YOUR MONEY AWAY JUST IN CASE

We all know we need to save money, but many of us put off saving. We need to develop a rainy day fund. Having a “rainy day fund” gives you the peace of mind of knowing you are secure and better prepared to meet unexpected expenses.

Bankrate’s Financial Security Index says 20 percent of individuals do not have any money saved. Only one person in five has sufficient funds to cover three months of expenses. Everyone should commit to saving even a small amount monthly. It will add up and become more useful over time.

by Jean Jeffers, Staff Writer

A rainy day fund should not be confused with an emergency fund. An emergency fund is money saved for times of unemployment and extended illnesses, when it is necessary to find the money to pay everyday expenses such as a mortgage, groceries and utilities as well as medical bills. An emergency fund is usually a savings of $10,000 to $15,000.

Rainy day savings are far smaller. This is the money you use to pay for service when the washer or dryer breaks down or to cover a few sick days or an occasional unexpected doctor visit, car repair or prescription. It is not for funding a vacation or the purchase of a new car. A rainy day fund typically is $1,000 to $5,000.

To build your rainy day fund, you may want to cut expenses or create extra income. There are two kinds of “rain” here: 1.Predictable rain: car insurance, property tax, car registration, expenses you know are coming and how much they are. 2.Unpredictable rain: you know the expense will come, you just don’t know how much or when.

Save for both. Here are some strategies for starting a rainy day fund: • Save your change, either coins and/or single dollar bills, left at the end of the day. • Quit a bad habit and save the money you spend on it. Consider giving up habits such as smoking, stopping at the local snack shop for a treat after work or getting that extra beer with dinner — put that money in your rainy day fund. • Find sources of extra income, such as selling part of a personal wardrobe that you don’t wear much or gently used furniture. These things could be sold on

Ebay or at a consignment shop. • Lay off the credit cards. Your aim is to budget and save out of your income, not to continue to go in debt. • Put that small raise you received into this fund. It will have a lot more muscle here. • Keep your rainy day fund in a Roth

IRA or a no-fee savings account. Other good places to park such money include certificates of deposit and money market accounts. • Don’t make it easy to get to the money.

For example, keep it at a different bank from where you have your checking account. • Put your financial goals in writing and periodically review them.

Teach your children to save for a rainy day as well by putting their gift money or part of their allowance in the bank. By helping them be aware, you may find you step up more to the task.

Source: www.bankrate.com

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