Rainy day funds. How do you save?

Rainy day funds. How do you save?

It’s important to save but it also feels really challenging to think about and find an approach that works with your lifestyle. I think that’s one of the blessings of time is you really begin to appreciate the security of having a bit of savings tucked away to fall back on when life bucks up (as it will do occasionally). @RyanJ wrote this piece recently called ‘Hope for the best prepare for the worst' that approaches saving in a really digestible way. It made me realize that while liquid savings is great for immediate need there are many different ways you can save to get you to the same end goal. 
 
Currently I have my rainy day fund in a Capital One 360 savings account earning .75% interest but I can’t help that I could be doing a better job than that with it. The article included a tool from NerdWallet that I used to identify higher interest savings account options that might make my money work a little more for me. I think for any real gains from interest though I might need to move it to another form of saving like a Certificate of Deposit or T-Bill.
 
It was really tough for me when I wanted to get started, but I finally began making real progress when I setup an auto-transfer to move a certain amount of money to my savings every paycheck. I've had my account setup like this for the past 3 years and it's really made a difference for me. I'm actually really glad I was able to make that headway, too. When my contract position ended unexpectedly last year having that savings really helped me feel secure about bills and rent while I looked for my next opportunity.
 
What is your rainy day strategy? Would love to hear your experiences with rainy funds, how you made saving work for you or when it paid off to have.  Looking at you @john_garrett @seichmann8 @MulletMoney23 @Jill_C  @Airf0rce, I feel like you all might have some handy tips for us! Cat Tongue

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Janice James - W+H Community Manager
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8 REPLIES 8

Re: Rainy day funds? How do you save?

Right there with you on the auto-transfer to savings.  Speaking of auto, when our car was paid off continuing that same payment amount to an easily accessible mutual fund is another way I used to build up backup savings.

Re: Rainy day funds? How do you save?

Janice, we're twins!  I also have the Capital One 360 savings, and I agree the interest is relatively low and I can probably find a solution that generates a higher return (but I'm lazy and hoping someone else has a good suggestion).  However, it is convenient and I have $100 going in there each month via automatic deposit.  Certainly making saving automatic is huge.  We all say we'll do it ourselves but I think few people actually do because, as Marcia Brady said, "something suddenly comes up" and you find you use the money for something else instead of saving it.  When it's an automatic deposit, you don't need to think about it, and I find a nice surprise when I occasionally log on to check my balance. I also have other investments, such as a stand-alone mutual fund for unexpected expenses, and a Roth IRA for additional retirement savings outside of my 401(k).  Overall, I'm doing OK but I'm always looking for new and inventive ways to save without compromising my lifestyle. 

Re: Rainy day funds? How do you save?

@Janice, admittedly, you are a step ahead of where I am with a rainy day fund. My wife and I have a joint savings account that we hardly ever touch, but we need to get better at adding to. Every few paychecks, we try to put some of our earnings away into that account, but it doesn't always happen. I have a Certificate of Deposit, but the interest rate is not that great. You and @Jill_C have driven me to look into some better options. Thankfully (and knock on wood), we haven't had to dive into any rainy day funds as of yet, but we need to be prepared if that day does come. 

Re: Rainy day funds? How do you save?

The most important principle of saving is Pay Yourself First. If you automatically pay into a retirement account at work every pay check, you will not view that retirement money as something you can touch before retirement.  If it goes into your paycheck, it is more likely to get spent. Second, if you need to save for a specific need like the down payment on a house, figure out how to adjust your spending so that money can be there each month. Third, putting money into a bank savings account is great for saving for the down payment on a home or car, but it is a bad idea for retirement account. If you are saving for retirement, you should consider putting a significant share of your retirement account money in stock mutual funds. If you are a patient investor willing to accept some swings in value to get much higher long term returns, history suggests you may do much better with a stock mutual fund than with a saving account over many years.

 

Re: Rainy day funds? How do you save?

Very  much agree with all the things you guys said above. I learned from my mom when it comes to finances. She taught me very young how to calculate fixed and flexible expenses and decide how much is a reasonable free flow spending budget and savings expectation. A couple of things that worked well for me so far:

 

  1. I do the same as @john_garrett - where anything that goes into retirement savings to me is like it never even existed. I did not make that money.
  2. The day I get paid, I login into my bank account without fail and transfer the following sums:
    1. Rent and other household expenses into a shared account with my husband to cover those costs (this has it's own debit card for paying expenses and groceries)
    2. Pay of credit card or other debt
    3. Understand what my monthly spending budget is (that I set for myself knowing my expenses for beauty, snacks, trinkets, clothes etc.)
    4. Transfer the rest into a savings account 

I know roughly how much money I need for #3 and what to expect for #4. If #1 and #2 are higher than what it should be (ie: I overspent on the credit card), then the balance is equally paid off from buckets #3 and #4. That way it's not just my savings that have to pay for it. So that month I have to rein in my personal expenses.

 

This has helped me make great progress on my savings. 

 

I taught my husband the same skills last year and I am teaching our children the same now. While the kids are not taking to it, my husband loves this method and we opened a savings account for the car for maintenance issues. Just $25 a paycheck for the car has brought us to $1000 already and now if anything happens to the car, it won't be my or his savings that have to suffer for it.

 

As for bank accounts, no savings or checking account will pay you a high enough interest to cover inflation, but it's still worth shopping around. My local coop is offering 2.25% right now.

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Re: Rainy day funds? How do you save?

Wow!  I have "Savings Envy"!  Is that a thing?  It is now!!

Re: Rainy day funds? How do you save?

@Jill_C - because of the "high" interest rate?

Re: Rainy day funds? How do you save?

@nvecseiI'm just impressed with how on top of things you are!  But that's good - I'm inspired.