Everyone should have a rainy day fund, but most people do not bother to set any money aside. As a result, they end up living paycheck to paycheck, and even the smallest financial setback can leave them reeling.
Financial experts recommend that everyone have a minimum of three to six months worth of living expenses in a rainy day fund, but most of us do not even come close to that mark. Fortunately, there are some simple and relatively painless ways to set money aside month after month. Whether you make $20,000 a year or $200,000, learning to manage your finances and put money aside for a rainy day are essential skills you need to learn. Here are some ideas to get you started.
Whether you are saving up for a down payment on a starter home or getting a head start on the education of your children, learning to set money aside will help in many different ways. Learning to delay gratification and thing long term is a vital skills – before you hire a Realtor or check out a new home listing service, you need to know how you will pay for the down payment and how you will make the monthly mortgage payments.
Pay Yourself First
One of the simplest and most effective ways to start an emergency fund is to make the savings automatic. Instead of waiting until the end of the month and seeing what is left, treat your rainy day fund as just another bill that must be paid.
The pay yourself first strategy is one of the best and most time tested ways to set money aside. It does not have to be a lot of money – just taking $10 or $20 out of your paycheck and putting it in the savings account or piggy bank is enough to get you started. As you get better at saving money, you can ramp up the amount and accelerate the amount you contribute to the rainy day fund.
Set a Monthly Spending Plan
If you do not yet have a household budget in place, now is the time to get started. Without a monthly budget it will be extremely difficult to tell where your money is really going. Once you have the budget in place, you can see exactly how much you are spending on food, clothing, entertainment and everything else in your life.
Your family budget does not have to be elaborate or fancy. You can find plenty of budget templates on the internet – all you have to do is plug in the numbers and wait for the program to do the calculations.
Establish a Monthly Money Transfer
You will need a safe and secure place to keep your rainy day fund, and a savings account is a great choice. You can make funding your rainy day account a lot easier by setting up a monthly transfer.
Making the transfer automatic and painless will make it easier to set money aside. Since the transfer happens automatically like clockwork, it will become a regular part of your life – one you may not even think about.
Setting aside money for a rainy day is very important. If you have not yet experienced a financial emergency, chances are you will one day. Being prepared can make that emergency easier to handle and help you get back on firm financial footing quickly.
Jeanne Shelton uses her work experience in business and financial planning to good use when it comes to her personal finances and is keen to share her insights with others online. Jeanne writes regularly for a number of different consumer finance websites.