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How to Invest and Save Money

How to Invest and Save Money

Britt Erica Tunick is an award winning financial journalist who has spent the past 17 years writing about virtually every aspect of finance. She has mastered the art of boiling down complicated financial topics for readers to understand.

The Importance of a Rainy Day Fund

The Importance of a Rainy Day Fund

By Britt Erica Tunick

Nobody ever plans for things to go wrong, but that doesn’t mean they won’t. While saving for a rainy day or the worst-case scenario may not be fun, it is something you would be crazy not to do. Unfortunately, it appears that the majority of Americans are not prepared for a worst-case scenario.

From an unexpected job loss, to major healthcare issues, or the death of a spouse, there are countless things that can turn a seemingly solid financial plan upside down literally overnight. Because of this reality, most financial advisors suggest that you keep at least six months of expenses socked away in an emergency fund that you do not touch. According to a new report from Bankrate.com, not only do less than 30 percent of Americans have six months’ worth of expense savings socked away, 23 percent have no emergency savings at all.

While the idea of keeping such a large amount of money sitting in the bank can be difficult to accept, particularly amidst the lingering low interest-rate environment that has prevailed since the 2008 credit crisis, failing to do so can be disastrous if the unexpected occurs and you are suddenly unable to cover the cost of your day-to-day living expenses and basic needs. Having enough money set aside to cover these costs is crucial, as it will give you and your family the time you need to deal with the unexpected event without the need to go into debt to do so.

To determine how much you should have in a rainy day fund, look at all of your crucial day-to-day living expenses and then add a bit more. Things to be included are: your mortgage or rent; insurance payments; car payments; utilities and groceries; and child care if both parents are working. And if there are any other recurring expenses you have that cannot be temporarily eliminated, those should be added in as well. Saving this money doesn’t have to be done overnight, but the sooner you can do so the better. It also doesn’t need to sit in a checking or savings account where it won’t earn any interest, yet it should be accessible on short notice if necessary.

To determine the best savings vehicle for your rainy day fund, you should speak with a financial advisor or, at the very least, a bank specialist who can lay out all of your options. Just remember, even if you don’t have a full six months of savings set aside, anything is better than nothing, so the sooner you start, the better off you will be.


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