Rainy Days and Mondays...Submitted by Karp Financial Strategies on September 5th, 2018
Rainy Days and Mondays…
Rainy Day Funds Can Come in Handy
Jeffrey P. Kendall, CFP®
Like those Monday mornings after a long weekend, no one wants to see a rainy day, otherwise known as an emergency. But also like Mondays, emergencies are inevitable. Life is expensive enough without those rainy days, and a little bad luck or a twist of fate can hit us right in the checkbook and challenge us to live within our budget.
An emergency reserves fund can help with major financial disruptions, which is why I have my clients sock away at least three months, and preferably six months, of living expenses, but for the minor ones, a rainy day fund might just do the trick.
A rainy day fund and an emergency reserves fund differ in scale, but not purpose. Both funds are designed to fully or partly absorb sudden costs. An emergency fund contains those three to six months cash reserves I suggest to help through a sudden financial crisis: a serious illness, a job loss, etc. A rainy day fund is built in anticipation of certain expenses that will invariably pop up. I like to have my clients have this money “on hand”, meaning immediate access to these funds, so a bank savings account, though not paying much interest, is a great place to park these funds.
As an example, think of a couple living here in the Carolinas, their property backing up to woods with a creek just outside their fence line. Most years, the creek is no bother; spring and summer rains are normal, but in two of the last three years, the rains have been heavier than normal. The creek seems to inch closer and closer to the fence line, with a little water creeping into the backyard and onto the patio, along with some ground erosion. Wisely, they start a rainy day fund to deal with the potential expenses that could arise from that impending big, rainy day.
Rainy day funds can address all kinds of financial inconveniences. Cars need service and repair, unexpected dental work may pop up, the cost of braces for the kids are more than expected, the dog ate a rock and needs surgery from the vet; I think you get the picture. A rainy day fund dedicated to some of these things may help allay costs.
A rainy day fund can also be built gradually. While a lump can get things kick-started, just a monthly contribution of $50 or $100 can also have your rainy day fund built up for those “Mondays”. The cash can go directly into a savings account, with an easy transfer over to your checking account when needed. Once the money is up to an amount that my clients and I agree upon, they could easily transfer some funds into a money market account or a bank certificate of deposit (CD) to possibly earn a bit more in interest. A rainy day fund is not only about saving money, but easily accessing it. A money market or CD gives you the chance to grow your rainy day fund, while still allowing quick access. Of course, an early withdraw from a CD may cost you an early withdraw penalty, but at the end of the day, the funds are still immediately accessible.
On a side note, newly revised data from the Bureau of Economic Analysis shows that Americans saved 6.7% of their incomes during 2016-17. This is good news. It suggests that consumers are being smart about their money and preparing for rainy days and Mondays.1
Content is for general information only and not intended to provide specific advice or recommendations for any individual. Investing involves risk including loss of principal.
For more information about starting your rainy day fund, your emergency reserves fund or any other short/long-term investing, you can contact Jeff Kendall at 704-658-1929 or firstname.lastname@example.org.
1 - bloomberg.com/news/articles/2018-07-27/americans-have-been-saving-much-more-than-thought-new-data-show [7/27/18]