rainy day fund - essential household account

What is a 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.

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 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.

Rainy Day or Emergency Fund?

The emergency fund is 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.

The Details

How much is enough?

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, 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. Planning and funding your essential household accounts 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.

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