“Save it for a rainy day.” It’s not just a throwaway phrase — it can also be sound financial advice when used with purpose.
A rainy day fund is a small, accessible cash reserve you set aside for minor unexpected expenses. Combined with an emergency fund, it can help you build a strong financial foundation, allowing you to manage financial setbacks.
Let’s explore the rainy day fund, including why it matters and how to build one.
Rainy day funds: the basics (CD)?
A rainy day fund is a savings fund that’s meant to cover occasional, minor surprises.
This may include expenses like:
- Minor car repairs, such as a cracked windshield
- Small home repairs, such as a broken appliance, and regular maintenance
- Unplanned school fees
- Minor medical procedures
- Pet emergencies
Typically, a rainy day fund ranges from a few hundred to several thousand dollars. It’s generally best to keep your rainy day fund in an accessible account. That way, you may easily tap into that money when an unexpected expense comes up.
Rainy day fund vs. emergency fund
Both rainy day funds and emergency funds can help you manage surprise expenses, but there are important distinctions:
|
Purpose |
Size |
Rainy day fund |
Covering small, short-term expenses |
Typically less than $5,000 |
Emergency fund |
Covering life-impacting events such as a job loss or medical crisis |
Typically covers 3 to 6 months’ worth of necessities |
Rainy day funds and emergency funds are both important to providing a financial safety net. However, they serve different roles in financial planning.
Why a rainy day fund matters
Having any amount of savings can be helpful for your finances, but rainy day funds may offer specific benefits. Keeping this money in a dedicated account, for example, may:
- Let you take quick action when unexpected costs pop up
- Help you avoid over-using credit cards to cover those costs
- Help minimize your financial stress
Plus, you’ll be able to keep making progress toward your savings or debt repayment goals, even when life throws financial hiccups your way.
How to build a rainy day fund
Starting to save for a rainy day fund might be less intimidating than building an emergency fund. Still, there are ways to make the process more straightforward.
Setting small, regular savings goals can help you start. You may also use automatic transfers from your checking account or direct deposits from your paycheck to help you build your savings with minimal effort.
You’ll also need to decide where to keep your rainy day fund. A savings account could be a good choice because it may allow easy access to your funds as needed while still earning interest.
