Rainy Day Funds: Who Needs One?

Rainy Day Funds Who Needs One

The majority of Americans do not have an emergency financial fund, which most experts agree should equal six to eight months’ worth of expenses, saved up and stored away. Experts have estimated that close to half of Americans do not have appreciable savings beyond their next paycheck. This puts those people in a precarious situation in the event that a financial emergency arises.

For many who are living from paycheck to paycheck as it is, however, the idea that they can succeed in earning and saving that amount of money seems daunting to say the least. Even so, and while doing so may be very difficult, putting yourself on the kind of budget that will eventually lead to such a fund is an important goal to strive for. Better some hardship now than a great deal of hardship later. Let’s look at some of the reasons why an emergency fund is important, and at some of the methods you can employ to finally obtain one.

Protecting Against Hard Times

The most important reason to maintain savings is to be prepared and protected against major financial reversals that can arise from unemployment, major home or auto repairs, major medical bills, and increases in the cost of living from inflation or from a growing family (or both). Over the course of an adult lifetime, one of more of these events is likely inevitable, making it critical that you do your best to prepare for it in advance.

Don’t Mistake Investment for Savings

Those of us who are fortunate enough to be maintaining investments should not equate those with savings. While investments are necessary to support your long-term financial health and savings, they won’t always help you in the present. Your investments may be down, after all, at the time you need them, and you don’t want to be forced to liquidate at precisely the wrong time.

Pay Down Debt to Increase Savings

If you are spending money to service interest payments on credit card debt, it will be doubly hard to ever achieve a significant level of savings. Those cards charge interest rates in the mid-teens to low twenties, levels you would never accept for a car loan or mortgage. Paying off a purchase over the course of a year or more can more than double the amount you pay.

It’s better to declare a reset, and pay down your credit card debt with what cash you have. If you can get a consolidation loan, or transfer the debt to a new card that offers an introductory 0% rate on balance transfers, often good for a year or more, than you should do so. This will allow you to achieve lower monthly bill payments, and once you have those payments down, you should be able to start saving.

Methods for Accumulating an Emergency Fund

You may want to begin my identifying a high interest yielding account. Unfortunately, as a result of government action following the 2008 financial near-meltdown, traditional banks are currently offering some of the lowest interest rates on record, which can be regarded as an assault on savers. Still, there are online banks that offer higher rates, and provided you do your research as to their solvency, you may wish to consider them.

Your next step is to sit down with your budget and decide where to make those cuts. Smartphone plans and cable TV bills are one area where savings can be achieved, and your food budget is another, provided you are willing to cook more and eat out a bit less. Even if you can only start with a $10 or $15 weekly deposit into your savings account, go ahead and get that good habit started, and you can add from there later.

Put Technology to Work for You

Not too many people are willing or able to go to the bank every week or even every month to make a modest deposit, and you’d eat up part of the savings in gas. Technology can come to the rescue here with automated deposits that you can set up from home at your computer. Let you computer enforce that savings discipline on you, and over time you will reap real rewards.

The Hardest Part Is the First Step

The hardest part of any journey is the first step, and for many Americans the first step to financial health begins with a disciplined savings program. While hard-pressed workers who are already making do with less will find it quite difficult to do with even less, they will appreciate those savings when they have to pass through a period of hard times. Benjamin Franklin was right to say that a penny saved is a penny earned.

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