4 Tips For Building A Rainy Day Fund
Most financial experts recommend keeping enough cash savings on hand to cover roughly six months of normal living expenses. Managing to actually put that much money away can be quite the challenge for most working and middle class people ‐‐ but the peace of mind and financial stability that a so‐called "rainy day fund" offers is tremendous. Here are just a few of the most common scenarios in which an emergency fund could save the day:
- ● You find yourself out of work or between jobs.
- ● You or a loved one has an expensive medical emergency.
- ● You experience unexpected car troubles, damage to your home, or another sudden, costly, and urgent expense.
Clearly, rainy day funds are a good idea in theory ‐‐ permitting you to cover important, unforeseen expenses without going into debt. In practice, actually building such savings can seem nearly impossible. Here are a few simple tips that can help get you started:
- 1. Budget. Simply taking time to analyze expenses, allot income, and plan for the future can help you identify trouble spending and resist financial temptations.
2. Save "new" money. Every now and then, a new source of money may come into your life. Perhaps you earn a raise, inherit funds, or finish making payments on your car, for example. When this happens, it is tempting to treat these newly available funds as disposable ‐‐ but making the effort to save (or pay down debt) is usually the smartest option.
3. Kick a bad habit. The average smoker in the US spends over $2000 on cigarettes per year. The average American spends over $1200 on fast food each year. And the average American household spent nearly $500 on alcohol ‐‐ though heavier drinkers can spend a lot more. The bottom line, kicking a bad habit (or at least cutting back) can improve both your finances and your life in general.
4. Keep a separate bank account for your rainy day fund. Though it may seem like an unnecessary complication, this is the only way to make sure that you don't spend your savings before they are truly needed.
For more information on getting out of debt, building a savings fund, and other important financial topics, visit Madison Monroe and Associates online today!