Rainy Day Finances

With the arrival of spring, we often hear the saying, “April showers bring May flowers.” We must plant our flower seeds well before the April showers come, or we will not see those May flowers. The same applies to our finances. Are you prepared for a rainy day? A costly car repair? A furnace that suddenly needs replacing? An unexpected job loss? If you have not fully prepared for a financial “rainy day,” take action now so your finances can flower tomorrow.

Start Small

Set aside three to six months of living expenses in a highly liquid, easily accessible account, such as a savings account or money market fund, to prepare for a financial emergency, such as a job loss or disability. If you don’t have that amount saved yet, start small. Begin by putting at least $1,000 in your rainy day or emergency fund. Do whatever you can to accumulate this as quickly as possible. Cut back on nonessential expenses, such as eating out and clothing purchases; hold a garage sale; or sell books online you have already read. Find creative ways to quickly build your emergency fund. Stay disciplined and commit to only using the fund in a true financial emergency.

Create a Plan

After you have a solid start to your emergency fund, create a budget that includes additional savings to fully fund it. Budgets represent a critical means to your financial security, and if you have never created one before, you can find plenty of tips and tools online to get you started. Find something that works for you, whether a written or digital worksheet, or a budget tool offered on your banking institution’s website. When creating a budget, build in the monthly commitment to your emergency fund, and then stick with it in order to fully finance your emergency fund with three to six months of living expenses.

Once you have filled your emergency fund, keep saving for something you will need in the future, or simply increase your retirement savings. At this point, saving has become a habit. Keep up this good habit.

It’s Raining. Now What?

Life happens, and you will experience an unexpected expense at some point. With your accessible emergency fund, you no longer need to worry about how you will pay the expense or feel tempted to use high interest rate credit cards. Simply transfer the needed funds from your emergency fund account to your checking account, and pay the expense. After that, when your emergency fund has been depleted, build it back up since your budget has a monthly savings commitment. You will build your fund, use it only for true financial emergencies and then save again to restore its previous balance. Instead of feeling a paycheck away from financial ruin, you will find peace of mind knowing you have the funds to cover financial emergencies as they arise.

The “rainy day” or emergency fund remains a critical component of financial security. A rainy day fund will prepare you for a financial storm. When the storm comes, your finances won’t get dried up and ruined. Instead, your finances will continue to bloom because you took the steps required to plan ahead of time.

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