How to Maximize Your Rainy Day Fund
How to Maximize Your Rainy Day Fund
It goes without saying that the COVID-19 pandemic has been an event that many of us had not yet experienced in our lifetimes. Hardships in the form of physical, mental, financial and/or emotional suffering had an impact on almost everyone at some level or another. Through it all, a sense of security is what most of us were, and maybe still are, seeking during this unprecedented time. Though no one can predict when hard times will strike, it’s this uncertainty that makes the need for building a rainy day fund essential.
Typically, a rainy day fund is intended to help tackle smaller, unexpected expenses, like a flat tire or a parking ticket, rather than to function as a replacement for all of your living expenses. This is where having an emergency fund is critical. An emergency fund should, ideally, contain enough money to cover three to six months’ worth of living expenses. Overall, any amount that you are able to start putting away into a savings account is a great place to start.
Building Your Rainy Day Fund
- Make a Budget
Taking a good hard look at your income and monthly bills and creating a budget based on both isn’t the hard part, but actually sticking to your budget every month can be. If the thought of taking an in-depth look at your finances is overwhelming, try the 50/30/20 rule— 50% of your income is used for necessities, like housing and bills, 30% is used for wants, like dining out or entertainment, and 20% is used for savings or paying off debt. It’s important to keep in mind, however, that this method is a rule of thumb, and everyone’s individual budget allocations will look different based on a variety of factors, including your age, level of income, family size and outstanding debt.
- Cut Extras
Once your budget is established, try to cut out any extra expenses that aren’t necessities. This includes anything from daily lattes to monthly nail appointments to premium cable subscriptions. Put the funds you save from these extras into your rainy day fund.
- Save Your Raise
Do you have an annual performance review coming in the near future? If so, you may be anticipating a promotion and, as a result, a raise. Use this extra money from each paycheck to build up your savings account. Or, if you’ve been struggling to pay off a high interest debt, using these newly acquired funds to start making a larger dent in the principal is also a great way to put your increase in income to good use.
- Sell Unused Items
Arguably, the most effortless way to make money for your rainy day fund includes selling any unused items around the house, including furniture, electronics, home décor or lightly worn clothing in good condition.
Maximizing Your Rainy Day Fund
After taking the necessary steps to building up your rainy day fund, it’s important to know how you can maximize your savings and put your money to work for you, even when you aren’t actively adding any money to your rainy day fund.
- Lifestyle Inflation
One of the best tips to keep in mind as you continue building up your savings is to not fall victim to lifestyle inflation. As our income increases as a result of raises and pay bonuses at work, often times we find that our spending increases as well. Lifestyle inflation can make it difficult to save money or pay off debt, so while it’s fine to treat yourself every once in a while, try not to live above your means too often.
- Save Automatically
Automating your savings requires little to no action on your part— simply set up a recurring transfer from your checking account to your savings account on paydays. Many times, you won’t even notice that this money has been moved!
- Choose a High-Interest Savings Account
Finally, put your savings to work by using a high-interest savings account. Valley’s Rewards Savings is a great option with high-yielding rates, and is easy to apply for online in just a few minutes.
No matter how you choose to approach starting your rainy day fund, the most important step is that you DO start. Unexpected and inconvenient situations are unavoidable, but you can make sure you’re prepared with a little extra padding in your savings account. For more information about our savings accounts, stop into your local branch or easily apply on our website today!