Be prepared and start saving.
Unexpected expenses happen but being prepared with the proper savings can help make your finances a little less stressful! Setting up a rainy day and emergency fund allows you to have a savings account with a purpose.
Rainy Day Fund
A rainy-day fund is smaller than an emergency fund and is often used for one-time small, unexpected expenses. A rainy-day fund should generally have $500-$1000 to ensure you have enough cash on hand to cover things such as car repairs, new appliances, etc. without affecting your monthly budget.
Emergency Fund
An emergency fund is larger than a rainy-day fund and usually contains three to six months of living expenses. To calculate how much you should have in your emergency fund, take the amount of your monthly expenses and multiply it by three or six. This fund should be used ONLY in case of a large, unforeseen financial emergency such as job loss, medical illness, etc.
How Do I Start Saving?
Start by setting an amount you want in both your rainy day and emergency fund, so you know what you’re budgeting and working towards. To start saving for your rainy day and emergency funds you will want to make small contributions each month. You can determine what amount you are comfortable with saving for each by adding the funds into your monthly budget. If you have extra cash such as a tax refund or yearly bonus, it’s always a good idea to increase your contributions to fully fund your account as quickly as possible. Not only will this give you peace of mind knowing unexpected expenses will be covered, but you will also be able to start working on other savings goals! Be sure you keep the two funds separate, so you know what money is designated for what.