A rainy day can happen for anyone at any time just when it is least expected. A tire can go flat. A child can need to go to a doctor. A washing machine can break. All of these things will take money to remedy. Many people will go to their wallets and pull out a credit card to pay for these depressing events. If they do not have the funds to back up the purchase, they will have to pay much more than the sticker price of the item or service that they need. This is the main reason that saving money for a rainy day fund should be on every person’s agenda.
A rainy day fund is set up to take care of emergencies that will fall outside of the normal budget in a household. These emergencies can lead to serious financial difficulty for those who are not prepared. According to some financial planners, getting a rainy day fund set up should be the main financial consideration of every family. Some would even go so far as to say that getting an emergency fund set up is more important than accelerating credit card payments or saving for retirement. This advice might seem counter-intuitive, but it actually makes quite a bit of sense. Those who do not have a rainy day fund will have to put their emergency expenses on a credit card, and these purchases will add to the credit card debt. Once an emergency fund is set up, there will be no need to add to the credit card debt that is outstanding. Hence, there will be less total interest paid out.
How much should a family have in an emergency account? This is a topic that is up for some level of debate. Some would argue that $500 is enough to get started. This is a decent start, and it is the minimum that would be necessary for many big-ticket emergencies. Those who can build up a fund of at least $1,000 will be better off for it. Once all other debt is paid off, with the possible exception of a home mortgage, it is then wise to raise the rainy day fund to a level that would pay for three to six months of expenses should the primary breadwinner lose his or her job.
Saving money for an emergency fund can take frugal living. It can also take quite a bit of time. Regardless of the difficulty of building up a rainy day fund, those who work to make sure they have funds for emergency expenses or a layoff will have much less stress than those who do not.