3 Tips To Get Your "Rainy Day" Fund Started
If you read my first blog post on my extreme budgeting habits, I promised you a follow up to one of the most expensive lessons I’ve learned. Like I shared with you before, I am a big fan of the envelope system. I used to place all my cash in envelopes for all the things I was saving for. One night when I was out on the town, my purse was stolen. We’ve all been there. It sucks. You know that as soon as you get home your number one priority is cancelling your credit cards, finding the nearest DMV to replace your driver’s license, pouting over the loss of that new lipstick you just spent too much money on at Mac, yada yada yada. This was certainly the case for me, though another moment of panic struck when I realized that I had my rent envelope in my purse. $800 of cash, gone. This may not seem life altering, but at a time in my life when one whole paycheck was rent money, this was a major problem.
So besides the expected moaning and groaning of being inconvenienced when something is stolen, I was in a heap of trouble for maintaining my life. No savings, no hidden credit card in an ice cube in my freezer, no wad of cash in a tin can in my garden. I was broke.
That meant resorting to desperate measures. If you didn’t know, desperate measures sounds a little something like this:
- Ring Ring
- Mystery Caller: Hello?
- Me: Heeeeeeeeeyyyyyyy Dad…
- No longer mystery caller: Ok, what do you want?
- Me: Funny you should ask...
Yes, Dad had to come to the rescue. Just when I was feeling like my “adult skills” were at their prime.
So this brings me to my point, the importance of an emergency fund and how to get started!
1. Why do I need an emergency fund?
Perhaps it’s not your rent money being stolen but everyone experiences hard times and they typically happen when we least expect it.
- Your car makes a funny sound one morning
- Your “oh I’ll be fine” common cold turns into a 3 week bronchitis/strep throat monstrosity and you can’t go into work
- Surprise! Your company is issuing layoffs and you’re lucky caller number 3!
- That brown stain that you have been accustomed to ignoring on your ceiling now has a mind of its own, its only a matter of time before your cat gets an unexpected (and unwelcome) shower when the ceiling caves in
- And less on the ominous side of things, “Honey… we’re pregnant!” a sweet bundle of joy is about to grace you with their presence, of course you are stoked, but perhaps not quite prepared for the 7 lbs of dollar signs that come with it
Whatever the “emergency” may be, wouldn’t it be nice to know that you’ve got it covered? Just by tweaking a few things here and there, you can mitigate all that financial stress that comes with life’s surprises.
2. How much do I need to save?
Most experts and financial advisers will recommend putting aside at least 3 months of your salary, if not closer to 6. This can be daunting and often times will intimidate people to the point of not even starting. We recommend that you tally up your necessary living expenses like rent/mortgage, utilities, car payment, and groceries. Then try to set aside 3 months’ worth of those necessities in case something were to come up and you can’t work.
Now let’s be clear, this isn’t going to happen overnight. Saving 3 months’ worth of living expenses will take time, so don’t stress yet!
3. How often and how much should I save each month?
This is where people get stuck. You don’t have to save hundreds of dollars every month to be successful with an emergency fund. Everyone’s contribution will look differently based on their situation.
You should set up a place where you have access to the funds, but can’t be accessed so easily that you will just spend it with your debit card. Money Clouds is a perfect example of this. Create an Emergency Fund Cloud and set an automatic funding schedule. You can access your money quickly if needed, but its out of sight enough to not tempt you to spend it.
The main thing here is to START and to be CONSISTENT. Making your monthly saving automatic will help you reach your goal in an efficient manner without having to think much about it.
Start small. Put aside $10 every week on an automatic schedule. If you feel like you can make that a bit bigger, strive for $20-$40. Think about it, if you put away $20 every week for a year towards your emergency fund, you’ll have saved $1,040. Cut back on some (not all) lattes or eating out and try for $100-$200 a month. By the end of the year you will have saved $2,400.
And if you have an extra $40 here and there, add it to your emergency fund. Once you start to see it grow, you will be more inclined to save.
This isn’t a race, it’s about creating better financial habits to better support your future. It doesn’t have to be complicated or stressful, just make sure you are setting the goals and committing to them, one day at a time. There is nothing worse than this trend we are seeing about incremental savings where you save $.10 here and $1.20 there. Or even worse, buy something here and $1.00 will be put into your savings account. Spend money to save money?!?! This method creates a false sense of security and doesn’t help form healthy intentional saving habits.
Define your goals, set a timeline, make a commitment, and I promise you will boost your financial confidence in no time. Soon enough you will be creating all sorts of Clouds for everything you want to save for. If you can pay yourself first, you will thank yourself later.
Save Intentionally. Live Intentionally.