Essential Household Savings Accounts & Why You Need Them

EVENTS & OPPORTUNITIES FUND

There are a few accounts that households should have set aside for different purposes. We’ve talked about the Emergency fund and the Rainy Day fund, and in the future, we’ll address funds for specific purposes or goals. Today we’re talking about the Events and Opportunities fund.

An Events and Opportunities fund can be helpful to take some pressure off some financial decisions. However, it probably ranks below the Rainy Day funds and definitely below the Emergency Fund in terms of importance.

 

An Events and Opportunities fund is used for things that come up that are unexpected but not emergencies. The event or opportunity would benefit you if you could participate, but it won’t leave you worse off if you don’t participate.

 

Here’s an example. Taylor Swift is currently on tour as I write this article. Tickets for her concerts cost a pretty penny if you can get them, but they have been incredibly difficult to get. Many who anticipated this concert and set aside funds for the tickets haven’t been able to actually get the tickets. You would love to go, and even more so, your daughter would love to go. But you didn’t set aside funds for this financially, and you wouldn’t even know where to start looking for tickets once the usual channels are exhausted. Now, imagine that the day before the concert, you get a call from a friend. They have tickets for the concert, but they have COVID and won’t be going anywhere for a few days. They offer you the tickets at a fair (fair is all relative) price. What do you do? If you decide that you will benefit from going to this concert (enjoyment, memories, etc.), then you use your Events and Opportunities Fund, buy the tickets from your friend, give them your wishes for a speedy recovery, and go enjoy the concert.

 

 

Or, here’s another example. The Smiths decided that they’d like to install a pool next summer. They started getting quotes in the fall and ran into two issues. First, the cost was much higher than they anticipated because pools and their installers became much more in demand during the pandemic. 

 

Second, the pool companies were unavailable until the year after they wanted it installed due to the increased demand. They pretty much gave up on the idea until one of the companies reached back out to them because, as it turned out, they would be installing pools for two other neighbors very close by. Because the equipment and workers would already be in the neighborhood, the pool company would be able to install their pool as well and at a better price than originally quoted, but only if it was at approximately the same time the neighbors were having their pools installed. And the installation date was in the spring, so they would even be able to use the pool the following summer. This meant the Smiths would be able to get their pool, but it would be sooner than expected. Once more, this would use your Events and Opportunities Fund.

 

Other instances would include types of entertainment events, opportunities to travel, and perhaps purchases that didn’t make your list of specific goals but an opportunity that presents itself that is mutually beneficial to you and the seller. In some cases, investment opportunities (well-vetted and aligned with your risk tolerance and overall financial plan) present themselves.

 

Again, this type of fund is intended to take some pressure off financial decisions, but not all. You must decide if the presented opportunity or event is worth your hard-earned dollars. The difference is that if you have the funds for these events and opportunities as they present themselves, you won’t derail the rest of your financial plan.

 

This article is intended to be educational and thought-provoking rather than financial advice.  When we work together in a financial planning engagement, we discuss your unique personal situation and your unique goals.  During our financial planning process, we examine these factors and many others to determine appropriate financial strategies for YOU.

Essential Household Savings Accounts & Why You Need Them

Rainy Day Fund

A rainy day fund is different from an emergency fund–but it is still incredibly helpful for your peace of mind.

A rainy day fund is used for those relatively small and somewhat expected expenses that happen, but you can’t necessarily count on the timing. Imagine that your everyday life is a series of sunny days where you go about your daily life following your routine. Rainy days happen now and then and may disrupt your routine. Sometimes the disruption is welcome; sometimes, it isn’t.

Here are some examples of when you might use your rainy day fund.

Depending on your age and stage of life, you probably find that certain events happen in clusters. Weddings, births, graduations–etc. You know that these events may be coming, but you don’t know when. Travel for these events can be expensive depending on when and where they are. And then there’s the cost of gifts. These would be appropriate expenses for the rainy day fund.

Let’s say you have children, and they are on school break. And, you literally have a rainy day–or worse, a string of rainy days. This is when you dip into the rainy day fund and plan an event. It could be a short trip, an educational experience, or just rain boots and raincoats so you can all go out and play in the rain.

Other examples of uses for rainy day funds would be medical co-pays or coinsurance payments and veterinary bills for regular checkups. You might also use the fund for the replacement or repair of small electronic devices, sports equipment, minor car repairs, and home maintenance expenses.

A rainy day fund differs from your emergency fund. Emergency funds are used to help cover large, unexpected expenses like major car repairs, major home repairs or large medical bills. The rainy day fund is used for smaller expenses that you know you are likely to incur, but you don’t know the timing, and you don’t know exactly how much they will be.

So, how much should you keep in your rainy day fund? As usual, with financial questions, it depends. If you have a large family, including your pets, then you’ll want to add more to your rainy day fund to help with those insurance co-pays and vet bills. If you and your household depend on electronic devices(don’t we all?), then you’ll want to add more to your rainy day fund as well. Take a look at what could happen in the next year to help you determine an amount. How old are your cell phones? How likely is it that you’ll need to replace them this year? How about iPads and other devices? What about small home appliances like coffee makers and toaster ovens/air fryers/etc., that you depend on? How much is the deductible on your car insurance? This is the amount that will come out of your pocket if there is an event involving your car. How about the kid’s activity levels? Will their activities likely lead to expenses like new sports equipment (or medical co-pays)?

The rainy day fund, like the emergency fund, helps with peace of mind. You can design your spending plan and account for all of the regular expenses.

However, everyone experiences unplanned–though

not necessarily unexpected–expenses from time to time. Your rainy day fund can help you cover those expenses without derailing the rest of your financial plan.

This article is intended to be educational and thought-provoking rather than financial advice.  When we work together in a financial planning engagement, we discuss your unique personal situation and your unique goals.  During our financial planning process, we examine these factors and many others to determine appropriate financial strategies for YOU.

Considerations for higher interest rates

Now that the Federal Reserve raised interest rates seven times in 2022, there are some factors that you should consider in your financial planning.  When it comes to interest, it makes a difference whether you are a borrower or a lender.  We’ll talk about the factors as a lender, or saver, in today’s post.  Stay tuned for our next post on considerations as a borrower.

After a decade of extremely low interest rates, we finally have interest rates that can help savers.  Here are a few areas where some adjustments to your plan may be in order.

Is your money working for you?

Did you know that, as of February 2023, you can get 3.75% APY on your savings account at a large national bank and even higher if you go with some regional banks?  That means you can earn $375 on $10,000 of your emergency fund just by having it in one of these accounts.  On the other hand, many of the large national banks are still only paying .01% on their savings and money market account.  So, you can earn .01% or you can earn 375 times that amount by looking around for better interest rates.

Reconsider your accelerated mortgage payments

Have you been making additional principal payments on your mortgage to pay it off more quickly?  If your mortgage interest rate is at 3.25% and you are earning 3.75% on your funds in the bank, you may want to take the extra funds that you’ve been dedicating to mortgage payments and earn more on those funds in the bank.

How about your tax return?

For at least a decade, interest rates were close to zero.  Aside from avoiding giving your hard-earned money to the government any sooner than you needed to, there was little reason to ensure that you weren’t withholding too much from your paycheck in income taxes – unless you were actually investing.  Now that we have reasonable interest rates, you could be earning interest on those dollars.  The government doesn’t pay you interest on those dollars unless they unnecessarily delay your tax refund after you’ve filed your tax return.  So, now it has become a question of whether you earn interest on those dollars or the government earns interest on your dollars.  The caveat here is that you would need to put those extra dollars where you’ll actually earn the interest income rather than spending the extra dollars.

This article is intended to be educational and thought-provoking rather than financial advice.  When we work together in a financial planning engagement, we discuss your unique personal situation and your unique goals.  During our financial planning process, we examine these factors and many others to determine appropriate financial strategies for YOU.