How to save for a rainy day

You may have heard the term save for rainy day before, but what is a rainy day fund? No, we’re not suggesting you add coins to a piggy bank to get ready for bad weather. Instead, a rainy day fund is a way you can help to prepare for life’s unexpected surprises.

But how do you save money for a rainy day ? And what role does insurance have to play in preparing you for the unexpected? This guide will explore the ins and outs of a rainy day fund and a handy step-by-step guide to get you started with budgeting for one.

What is a rainy day fund?

Not to be confused with an emergency fund, a rainy day fund is money you have saved for unexpected, arguably minor expenses. Like your other financial goals, a rainy day fund usually accumulates over time as part of your regular budget. Given the uses for your rainy day fund, this pot of money is typically easy to access, unlike other forms of savings which you may not be able to touch.

Why is saving money for a rainy day important?

A rainy day fund can help provide you peace of mind knowing that you’ve got a safety net to fall back on. Whereas life insurance may help prepare you for more drastic changes or long term expenditures, a rainy day fund can help you live life with confidence knowing that you have money available for smaller unexpected expenses. There are many examples of when you may need to draw on a rainy day fund, depending on your lifestyle.

1. Home maintenance

For most people, property may be their most significant investment. Unfortunately, the spending often doesn’t end when you sign on to buy the house. Whether it’s to meet the Healthy Home Standards or fix something cosmetic, home maintenance costs can pop up out of nowhere. Examples include:

• Broken windows

• Broken appliances

• Blocked drain

• Faulty electrics

• Heating or air conditioning repairs

• Septic tank repair.

Are you spending enough on regular home maintenance? Sometimes a proactive instead of reactive approach can be kinder to your wallet. Routine maintenance may mean you don’t need to rely on your rainy day fund as much.

2. Car repairs

Your car may be your ticket to freedom, but it can also be your ticket to a headache. Like your home, sometimes your car can also serve up costly surprises. Examples of smaller vehicle costs include:

• Small accidents or crashes

• Replacing bulbs

• Windscreen chips

• Replacing tyres

• Replacing oil

A rainy day fund can provide you with a cash injection to cover smaller vehicle costs. Of course, we’re referring to smaller issues where your car isn’t a total write off

Top tip: Don’t forget about those parking tickets. The overdue fines can really add up.

3. Pet care

Our furry, feathered and scaly friends may be more like family. But just like family, sometimes pets have accidents and illnesses, including vet bills and unexpected vaccinations. These smaller costs can be covered with the help of a well-stocked rainy day fund.

4. Unplanned travel

Sure, we all have planned holidays that we save up for well in advance. The unplanned travel we’re referring to here is not so much a holiday. Sometimes you’ll need to travel without any time to prepare or save. For example:

• For a wedding

• An overseas family member becoming ill or passing away

• A new job opportunity.

Travelling can be expensive, especially if you’re heading somewhere far away. A rainy day fund can help pay for upfront costs.

5. Unexpected gifts

Similar to travelling for a wedding, sometimes you’ll need to pay for unforeseen gifts. Whether a wedding gift, birthday gift, or present for a newborn, a rainy day fund can allow you to pick out something nice.

How much to save for a rainy day fund

When considering how much money you should save or budget for a rainy day fund, it can be helpful to think about the examples we’ve just gone over. The savings you have in your rainy day fund should be able to cover any of those events. Generally speaking, $1000 can be a good financial goal. Although $1000 may seem like a lot, sometimes you may need need to stump up for more than one expense at once. You know the saying, when it rains it pours.

How to save money and budget

Making a good budget and sticking to it can be one of the best ways to save for a rainy day. Budgeting is helpful not only to help you reach your financial goals but also to take the stress out of saving money.

Follow these easy steps for budgeting tips:

1. Take stock of your income

The best place to start when planning a budget can be getting a lay of the land. It’s hard to do any form of budget without knowing what you have to work with. The best way to do this can be to get one of your paychecks and look at your net income after tax has been removed.

2. Write down your expenses

It may be slightly confronting, but the next step is sitting down and listing all of your outgoings. We’re talking about regular expenses, including your:

• Rent

• Mortgage

• Gym membership

• Utilities like power

• Insurance

This step can not only help you understand how much money you can spare for a rainy day fund, but it can get you in the right frame of mind to consider possible unexpected expenses.

3. Plan your budget

Now that you know your financial incomings and outgoings, making a budget should be simple. There are a lot of helpful online resources and templates available to assist you. In terms of saving for a rainy day fund, it can be important to ensure enough is left over for regular payments. It shouldn’t have to be too much of your regular income.

4. Stick to your budget

You’ve got your budget. Now it’s time to stick to it to reach your financial goals (including your rainy day fund). Life is for living, so you shouldn’t be too hard on yourself. In saying that, there are ways you can help yourself stay on course, including:

• Sleeping on big financial decisions (don’t rush)

• Create bank accounts that you can’t touch without contacting your bank

• Lower your overdraft

• Try to buy cheaper alternatives when you can

• Have a strong ‘why’.

Source: www.chubb.com