Rainy Day Fund: What It Is and Why You Need One - NerdWallet (2024)

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Rainy Day Fund: What It Is and Why You Need One - NerdWallet? ›

Stockpiling savings for stormy days — literal or figurative — can help you cover financial difficulties. For many, a few hundred dollars is enough to tip the scale into debt. So a rainy day fund is crucial for when an expense that isn't in your monthly budget strikes.

How much should you save? While the size of your emergency fund will vary depending on your lifestyle, monthly costs, income, and dependents, the rule of thumb is to put away at least three to six months' worth of expenses.

A rainy-day fund is smaller than an emergency fund and is often used for one-time small, unexpected expenses. A rainy-day fund should generally have $500-$1000 to ensure you have enough cash on hand to cover things such as car repairs, new appliances, etc. without affecting your monthly budget.

Having a rainy day fund with enough money to pay for those uncommon expenses can be a huge relief. It can take financial stress off your plate and protect your family's finances from debt. And remember, even a small amount of savings is better than having no savings at all.

It isn't wise to invest your emergency fund. If you put this money in the stock market or other high-risk investment, you'll be exposing yourself to potential losses and it might also be difficult to access your money.

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings.

You should keep your emergency fund somewhere that you can earn interest on your savings without sacrificing easy access to your money in an emergency. The best options include high-yield savings accounts, money market accounts and certificates of deposit (CDs).

Most illuminating is the Fed's Survey of Household Economics and Decisionmaking (SHED). It showed that 54% of U.S. adults have enough savings to cover three months of expenses if they lost their primary source of income. (The data is from October 2023.)

How much? Between 3 – 6 months living expenses saved in your rainy day fund is the general advice. This means you won't need to borrow money or dip into your investments. The best goals are achievable and specific.

A rainy day fund is savings that's generally for expected, occasional expenses — events and things that you don't necessarily account for in your monthly budget but that are expected to happen over time. This list can include occasional expenses such as minor car repairs, routine medical expenses and home maintenance.

Should I have a rainy day fund? ›

If you have a mortgage and financial dependents, you might want to aim to have three to six months of expenses in your rainy day fund. That way you can cover living costs for you and your family while you work out your next steps.

It's best to keep your rainy day fund in a savings account at a bank or credit union. These accounts offer low risk and allow you to access your funds quickly and as needed. When choosing a savings account for your rainy day fund, consider a high-yield savings account.

How much do I need? Ideally, 6 months' essential expenses – for example, rent or mortgage, utility bills and groceries. If you're just starting out, you could set a smaller target – such as 3 months' essential expenses – to begin with. Any emergency fund is better than nothing, so don't be discouraged.

A rainy day or rainy day fund is a reserved amount of money to be used in times when regular income is disrupted or decreased in order for typical operations to continue.

California

Its rainy day fund made up approximately 14% of general fund expenditures in 2019 and would be able to cover almost 53 days' worth of spending. Withdrawals from California's rainy day fund must happen under the condition of revenue volatility.

How much do I need? Ideally, 6 months' essential expenses – for example, rent or mortgage, utility bills and groceries. If you're just starting out, you could set a smaller target – such as 3 months' essential expenses – to begin with. Any emergency fund is better than nothing, so don't be discouraged.

A rainy day fund is for smaller unanticipated expenses, such as buying new tires or paying to repair a home appliance. An emergency fund is reserved for unexpected events or major life changes, such as a job loss or divorce, that can have severe consequences on your finances.