Why You Need a Rainy Day Fund: How to Prepare for a Financial Storm

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Life is unpredictable. Some days aren’t all sunshine, like when your car breaks down or your house needs a repair. These situations happen to everyone. That’s why it’s important to save while things are going well, so you’re protected when things go wrong. A rainy day fund can help you pay for unexpected bills beyond your normal living expenses.  

You’ll be at ease knowing you can afford an unexpected bill or two. More importantly, you can cover the expense without charging it to your credit card or taking out a personal loan — both of which can have high interest rates. Keeping a rainy day fund can also help you build financial discipline by making saving a habit.

In this article, we’ll share what a rainy day fund is, how much you should have in a rainy day fund, and how to begin saving. Include a rainy day fund in your financial planning to stay ready when the next financial storm to roll in.

What Is a Rainy Day Fund?

1 in 5 adults incurred a major medical expense in 2018

A rainy day fund is an amount of money set aside for small expenditures that are outside of your normal living expenses. The idea is to use a rainy day fund for one-off expenses, such as a car or home repair.

Why is it called a rainy day fund? Just like you need to adjust your plans to accommodate unexpected weather, you should also have a financial backup to accommodate unexpected expenses. You might not anticipate a thunderstorm or a broken washing machine, but either could happen at any time, so it’s best to prepare.

How Much Money Should I Have in My Rainy Day Fund?

The right amount of money in a rainy day fund is different for everyone, but experts suggest $1,000 as a starting point. For instance, $1,000 should be able to cover things like a simple car repair or a new appliance.

Ideally, your rainy day fund would equal the highest amount you can expect to pay for an unexpected bill. If your health care deductible is $1,500, you’ll want to keep at least that much in your rainy day fund. Car repair prices range, but common fixes on the brakes or alternator cost between $400 and $700. Just in case two rainy days happen close together, it’s a good idea to increase your savings goal.

If you’d like guidance for your unique situation, consider reaching out to a financial advisor. They can look at your current finances and help you create an excellent savings plan. They can also help decide how much money to put in a rainy day or emergency fund.

Rainy Day Funds vs. Emergency Funds

Rainy Day Fund Emergency Fund
Recommended Savings $1,000 3–6 months living expenses
What Does
This Cover?
A few unexpected bills or costs Extended financial stress during major life changes
Where Should I
Keep This Account?
Cash or savings account Money market or CD

An emergency fund is a larger financial safety net — usually equal to three to six months of living expenses. While a rainy day fund tends to be much smaller than an emergency fund, both are crucial to your financial plan. 

By having funds available for non-routine expenses, you can cover the extra costs without suffering too much hardship. For example, if you don’t have an emergency or rainy day fund in place, you may have to resort to a personal loan or payday loan. The interest rates on these types of loans run high, meaning you’ll end up paying much more in the long run. Otherwise, you may find yourself withdrawing from your 401K and other savings, which can hurt your long-term financial goals. With backup funds readily accessible, you’ll have peace of mind knowing you can cover the extra bills.

How to Save for a Rainy Day Fund

Luckily, there are several great ways to build a rainy day fund, but your first step should be to build a budget or adjust your current plan to contribute to a rainy day fund. This way you can maximize your contribution until you reach your goal, then divert that money to other savings accounts. Here are the best ways to save for a rainy day fund:

  • Set up a direct deposit: Create a separate direct deposit so that some of your paycheck goes straight to your rainy day fund.
  • Download an app: Some budgeting apps automatically split your paycheck according to your budget and give you regular savings advice and tips.
  • Transfer cash monthly: Set up an automatic transfer that occurs once a month. For example, you may want to transfer $50 per month from your bank account to a money market fund.
  • Create a rainy day fund jar: Throw your spare change into a jar or piggy bank. While your fund will start out small, it will build over time and is easy to access.
  • Replace some discretionary spending: If you normally have a latte in the morning or shop for new clothes every month, consider scaling back for a few months. Place that discretionary money in your rainy day fund until you reach your goal. 

Where Should I Put My Rainy Day Fund?

Your rainy day funds should be readily available and kept in an account that’s liquid, meaning you can retrieve it quickly without any fees. Money markets, savings accounts, and high-yield bank accounts are great options. 

To keep your finances organized, your rainy day fund should be separate from your other investments and accounts. That way, you’ll know exactly how much you have and can pull out the funds when you need it. 

Having a rainy day fund gives you peace of mind and more financial stability. You’ll have a backup to cover expenses when dark clouds appear without the need for a loan. You’ll also be more skilled at saving, which can offer you new financial opportunities. With extra funds available, you’ll bring a little sunshine to your future rainy days.


Written by Mint

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