Creating a rainy day fund

kids splashing in puddles
It’s not easy to save. There are always bills to be paid and there is little incentive to put money in a bank account where you‘re only likely to see a small return yearly. Still, truth is, having a savings account, or a “rainy day” fund as it’s called, provides a safety net in the event you lose your job or have an unexpected medical emergency.

Creating a rainy day fund can be a challenge, but you’ll be glad you have the cash you need on-hand should a crisis arise. How much? Traditionally a fund of this type would be enough to cover household expenses for up to six months. If you’re able to save more, all the better.

Know what you spend

Finding extra cash means more than just digging under the couch cushions for pennies. Savings comes in big and small ways. Keeping track of your spending will help you find places where you can save. Start by building a simple monthly budget. Include all sources of income and all hard and soft expenses. If you track how you spend money closely you’ll quickly see what is essential and what is not.
Be sure to capture everything. This includes that daily cup of coffee, that Netflix subscription, that Amazon Prime Account. Maybe you’re using Dropbox or some other “cloud” service. There are so many little things we pay for now that are simply charged to our credit cards behind the scenes. Here’s a thought, avoid interest charges and make those expenses more visible by swapping out the credit card with a bank debit card.

Pay yourself first

Take advantage of direct deposit and have your employer split your paycheck between a checking and savings account. Pick an amount you can live with. Got a raise? Funnel that increase into your saving account. If your employer is unable to reroute to a savings account for you, your bank can.  Tax refund? Celebrate by moving it into your savings. The same goes for other unexpected windfalls, such as bonuses, or even a small inheritance. Sacrificing short-term can lead to long-term security.

Some simple things you can do to saving:

  • Check with your Doctor about generic replacements for any prescription drugs you or your family may be using.
  • Consider giving up cable. With so many alternatives out there to access TV – including antennas that capture HD – canceling that ever increasing cable bill could save you lots of money each month.
  • Cut back on costly dry cleaning
  • Are you and your family really using that gym membership? If so, shop around.  You may find a better facility at a better price. If not quit until next New Years.
  • Stop buying bottled water and install a water filter or use a filtered carafe.
  • Shop wisely. Replace name brands with cheaper store brands and buy in bulk when staples are on sale. Don’t shop for groceries when you’re hungry.
  • Make your own coffee a couple of times per week. If you don’t like instant or home-brewed coffee, invest in an espresso maker. You’ll save in the long run. If you must go to Starbucks or Dunkin Donut’s every day, consider downsizing your drink or the number of drinks per day.
  • Preventive maintenance – Whether it’s your health, your teeth or your car avoid unexpected costs through preventive care.
  • Carpool.
  • Start selling stuff. Craig’s list and EBay are a great way to turn things like old electronics, or that kayak you never use, into cash.
  • Don’t shop impulsively. This is particularly true online where 1-click makes it so easy.
  • Keep credit card spending to a minimum to avoid paying interest and don’t rely on overdraft protection to pay for things you can’t afford.
  • When was the last time you shopped for car or home insurance?
  • Consider refinancing your home if you haven’t in recent years.
  • Cut costs around the house by making it a point to turn off lights when leaving a room. Replace old traditional bulbs with new – and now cheaper – LED bulbs.  Caulk leaky windows. Change furnace filters. Saving energy saves money and it’s good for the planet.

A Penny Saved is…

It’s the little things that get us through our day, but it is also the little things that add up. So build a reward into your savings plan, maybe a dinner out or perhaps a movie. Remember those pennies in the couch cushions?  Keep a coin jar, put all your loose change in it and use it toward your celebration. By celebrating after you save instead of before, you’ll be confident knowing your rainy day fund is secure and available should there be a change in the weather.

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