Like an emergency fund, it can come in handy.
Sometimes, life gets expensive. 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 fund may help us handle major financial disruptions. For the minor ones, a rainy day fund may suffice.
A rainy day fund and an emergency fund differ in scale, but not purpose. Both funds are designed to full or partly absorb sudden costs. An emergency fund contains enough cash to help a household through a sudden financial crisis: a serious illness, a job loss. A rainy day fund is built in anticipation of certain expenses, rather than as a response to unforeseen emergencies. It may be created just to deal with one probable future expense.
An example, think of a couple living in a desert community not far from a normally shallow or dry creek. Most years, the creek is no bother – but in two of the past 12 years, summer monsoons have caused the creek to swell, with a little water creeping into their backyard, patio, and kitchen on both occasions. Wisely, they start a rainy day fund to deal with the potential expenses that could arise from that impending rainy day.
Rainy day funds can address all kids of financial inconveniences. Cars need service and repair; a rainy day fund dedicated to auto maintenance may help allay costs. Dental work can become expensive. So can veterinary bills. College textbooks seem to be pricier each year.
A rainy day fund can be built gradually, if preferred. Think $20 or $50 a month. Or, you can devote a lump sum to one. The cash can go into a savings account, a money market account that gives you the ability to write checks, or an interest-bearing checking account.
How about an investment account or a certificate of deposit? The idea could have more downside than upside. A rainy day fund is not only about saving money, but easily accessing it. A CD gives you the chance to grow you invested assets, but if you want to quickly withdraw those assets, you may end up with a loss stemming from an early withdrawal penalty. Similarly, you could end up withdrawing less from a brokerage account than you put into it, due to investment under performance.1
Newly revised data from the Bureau of Economic Analysis shows that Americans saved 6.7% of their incomes during 2016-17. This is encouraging. It suggests that consumers are being prudent, building case reserves for both financially sunny and rainy days.2
View More Articles
Learn More About Trek Financial
Visit TrekFinancial.com
Contact Us
Citations.
1 – studentloanhero.com/featured/times-cd-work-for-your-savings/ [7/10/18]
2 – bloomberg.com/news/articles/2018-07-27/americans-have-been-saving-much-more-than-thought-new-data-show [7/27/18]
Investment advisory services are offered through Trek Financial, LLC., an SEC Registered Investment Adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment. Trek FG 18-135
