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Be Prepared for the Storm: Building and Managing an Rainy Day Fund

A rainy day fund is a savings account set aside specifically for unexpected expenses or emergencies. This can be anything from a medical expense, home or car repair, or even job loss. Having a rainy day fund in place can give you peace of mind, knowing that you have a cushion to fall back on if something unexpected happens. In this article, we'll take a look at why you need a rainy day fund and how much cash you should have on hand.

Why You Need a Rainy Day Fund

Unexpected expenses can happen to anyone, and they often come at the most inconvenient times. For example, your car could break down or you may need a new furnace during the winter. Without a rainy day fund, these unexpected expenses can be financially devastating. A rainy day fund can help you to cover these expenses without having to take on debt. It can also help to reduce stress, as you won't have to worry about how you're going to pay for the unexpected.

How to Start a Rainy Day Fund

Starting a rainy day fund is simple, but it does require discipline and commitment. The first step is to determine how much money you can realistically set aside each month. This will depend on your budget and your other financial goals. Once you have determined your monthly savings goal, you will need to decide where to keep your rainy day fund.

One option is to open a high-yield savings account. Many banks and credit unions offer high-yield savings accounts with competitive interest rates. Another option is to invest the money, for example in low risk stocks or bonds, which can give you higher returns on your investment, but remember that is also has a greater risk of losing money as well.

It's important to find an account that is easily accessible, with low fees and penalties for withdrawing the money. Avoid keeping the money in your regular savings account, because the temptation to spend it might be too big.

Once you have your rainy day fund set up, it's important to stick to your savings plan. One way to do this is to automate your savings. For example, you can set up an automatic transfer from your checking account to your rainy day fund on the same day that you get paid.

How Much Cash to Have on Hand

It's also important to have cash on hand in case of emergency, as during a power outage, natural disaster or other crisis, the banking systems might be offline and you won't be able to access your funds. It's recommended to have at least 3 to 6 months of living expenses in cash, in case you are unable to access your bank accounts or credit cards for an extended period of time.

This cash should be kept in a safe place, such as a fireproof safe or a bank deposit box. It's also a good idea to have some smaller denominations of cash as well, as it can be difficult to break large bills during an emergency.

Where to Keep Your Cash?

It's important to have a safe place to keep your cash where it will be easily accessible in case of an emergency. A fireproof safe, hidden in a closet or a basement can be a good option, or a safe deposit box in a bank. It's important to keep the key or the combination in a safe place as well, so you will be able to access it when needed.

Another option could be to have cash stored in different places at home, or in different forms like cash, gold or silver coins, or in bitcoin or other cryptocurrencies. But it's important to remember that these forms of cash can be harder to access or less stable in value.

Managing Your Rainy Day Fund

Once you have established a rainy day fund, it's important to regularly monitor and manage it to make sure it stays on track to meet your needs. One way to do this is to periodically review your expenses and adjust your savings goals accordingly. For example, if you find that your car repairs are costing more than you had anticipated, you may need to increase your savings goal to reflect that.

It's also important to not dip into your rainy day fund for non-emergency expenses. It's easy to justify small purchases or luxuries from your fund, but it will deplete your emergency fund quickly, and then you won't have any savings left for unexpected expenses.

Tips for Building Your Rainy Day Fund

  • Here are some additional tips to help you build and maintain a rainy day fund:
  • Start small if you need to: If you are just starting to save, set a realistic savings goal that you can stick to. Even a small amount of savings can add up over time.
  • Prioritize your savings: Make your rainy day fund a priority and include it in your budget. You may need to cut back on other expenses to make room for your savings.
  • Look for ways to increase your income: You may be able to increase your income by taking on a side job or freelancing. Any extra money can be used to build your rainy day fund.
  • Make it automatic: Automate your savings by setting up a regular transfer from your checking account to your rainy day fund.
  • Be mindful of the fees: Look for a savings account with low fees, as this can help to maximize the growth of your rainy day fund.

Final Words

Having a rainy day fund is an important step in protecting your financial security. It can help you to cover unexpected expenses and reduce stress. The key to building a successful rainy day fund is discipline and commitment. It's important to start small and set a realistic savings goal that you can stick to. Be sure to regularly monitor and manage your fund, so it stays on track to meet your needs. It's also important to have some cash on hand, in case of emergency, so you will be able to access your funds even if the banking systems are offline. Remember that preparing ahead of time can give you peace of mind, so you can feel more secure in the face of unexpected expenses.


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