In these uncertain times, it’s as important as ever to start building a rainy day fund.
A rainy day fund is a type of emergency fund, its money you have, but hope to never have to use. Its when something unexpected happens that can cost you dearly. A rainy day fund is for necessities and unplanned expense like unplanned house or car repairs, media costs, unexpected bills and job loss.
Setting up a rainy day fund will give you safety net, so you don’t have to borrow money if something happens to you or your family.
According to Finder Research, almost 40% of Australians could survive on their current savings for just one month or less if they lost their job tomorrow.That’s not very long!
That is why, it is so important to have rainy day fund always set aside to help you pay for unexpected costs. You might not think you need one right now, but sooner or later we’re all faced with an unplanned cost.
Even if you can only save a little, make a start today and keep saving. The more you can regularly save, the better. For example, if you were to put aside $20 a week into savings, you’ll have over $1040 by the end of the year. That’s a good start to building up your savings and giving you some breathing space.
With guidance from the Oracle Financial Planning Newcastle team, we will guide you to build up your rainy day fun.
Why do you need a rainy day fund?
Life is unexpected, you never know what is around the corner and when you may need extra cash to cover an unexpected cost. The pandemic has revealed the importance of an emergency funds like no other time before.
Having a rainy day fund is part of good financial planning. It gives you peace of mind, because you know that if anything comes up, you’ll be able to cover it financially.
How much to you need to save?
It’s recommend having at least $1,000 saved for you rainy day fund, but more is always better.
You’ll need to decide how much you need for your rainy day fund. In this case, thinking long term about some of your expected expenditures will help you decide how much you need. Do you have an aging pet? Do you kids need braces? Is your air conditioner on the fritz? Factor all these into your decision.
So, let’s say you decide you want to save $2,000 for your rainy day fund and you can afford to set aside $75 a month, it will take you just shy of 27 months to reach your goal. You could also make other small cuts your budget or even collect spare change to help fund your rainy day savings.
How to build a rainy day fund
Analyse your expenses
Once you know how much you’re aiming to save and how long you want to give yourself to save it, break this down into a monthly savings target to make it more achievable and less daunting.
Look at your transactions for the last few months and what you’re spending on living expenses versus everything else. You can find this by logging in to your Internet banking portal and looking for the latest statement or list of transactions section.
Cut something from your spending
You may find it difficult to find cash in your budget to save for your rainy day fund. We recommend examining your spending and see where cuts can be made to your spending. For example – instead of buying a coffee every day at work, cut the coffees down to just 2 a week, this will save you $15 a week or $780 a year!
Pick something you can live without and use those savings to build your rainy day fund.
Pick an account for your rainy day fund
Once you have your savings goal and you know how much your money you’re aiming for, its time to put this into action. You may already have a savings account, which is great, but it’s a good idea to open a separate account dedicated to emergencies only.
By keeping your rainy day fund in a separate account, you are less likely to be dipping into your savings for things that aren’t urgent. We don’t recommend a term deposit, as it is locked in the life of the term. If you need money urgently with little notice, you’ll need to request to break your term deposit early with the bank and you‘d be likely to lose any interest owned. We recommend a savings account that can be easily accessed instantly whenever you may need it.
Automate your savings
After you have chosen your savings account, now its time to set up an automatic transfer to your rainy day fund, from the account that your wages is paid into. Every time you get paid, have a set amount transferred to your savings accounts.
Monitor your progress
If you find it hard to meet your monthly savings goal, chances are you’ve set this a bit too high. Similarly, if you find it really easy to meet your monthly goal and you’ve got plenty of money to spare on things like eating out and retail shopping, you could have set your goal a bit too low.
After one month, take a look at your progress and see if you can increase your monthly goal or if you need to relax your target a bit.
With a rainy day fund, you can set up for a life with less financial stress and anxiety. Come what may, money will less likely be an issue when you have those expenses covered in a rainy day fund.
Get in touch with us today for complimentary consultation to discuss your financial position and we can provide you advice tailored to your unique situation.