Do You Need a Rainy Day Fund?

By Krystal Etienne · July 08, 2023 · 7 minute read

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Do You Need a Rainy Day Fund?

The expression “rainy day fund” describes savings that help you get through bad weather, financially speaking. The bad weather could mean a medical expense that your insurance doesn’t cover, a car repair, or any number of other “uh-oh” moments.

Many people aren’t prepared to cover this kind of surprise expenditure, even if it’s just $100 or so. Perhaps they are living paycheck to paycheck; are focused on paying down debt; or are saving for a big goal such as a down payment on a house. Having funds set aside can keep little financial storms from wreaking havoc with your monthly budget and longer-term money aspirations.

With that in mind, here’s what you ought to know about rainy day funds, including how to start one and a good amount to save.

What is a Rainy Day Fund?

A rainy day fund is a pre-set amount of savings set aside to cover extra, one-off expenses that may crop up throughout the year like a car or home repair.

They are called rainy day funds because, just as you need to have a backup plan to accommodate bad weather, you’ll also want to have a backup to accommodate sudden extra expenses.

Just like a thunderstorm, a broken dishwasher can occur out of the blue. Being prepared for little financial upsets can keep them from becoming major stressors and disrupting your financial life and/or causing you to go into debt to cover the costs.


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Rainy Day Funds Vs. Emergency Funds

An emergency fund is a larger back-up fund typically containing three- to six months worth of living expenses. An emergency fund is designed to be used for more extreme financial disruptions, such as a job loss, major medical bill, or the need for a new roof.

A rainy day fund is generally a significantly smaller amount of savings meant to cover expenses that have a good possibility of coming up, you’re just not sure when. These could also be expenses that always come up once or twice a year, such as annual maintenance of your home heating and air conditioning systems. You may also sometimes hear the term “cash cushion” when people refer to smaller savings vs. an emergency fund.

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Why Can’t I Use My Emergency Fund?

Technically, an emergency fund could be used to cover smaller, short-term expenses.

However, if you’re wondering when to use your emergency fund, depleting it on lesser expenses can chip away at your ability to cover the larger, truly unexpected expenses that could occur down the line.

You might need to resort to using credit cards, a personal loan, or a payday loan. Due to the high-interest rates on these types of loans, you would end up paying much more in the long run.

Or, you might have to withdraw from whatever kind of retirement fund you have or from your childs’ college savings, which could hurt your long-term financial health.

Recommended: Emergency Fund Calculator: How Much Should I Save?

How Much Money Should I Put in My Rainy Day Fund?

One ballpark figure for a rainy day fund is to have at least $1,000 saved since that can be a reasonable amount to help cover unexpected costs.

How much you’ll want to set aside in your fund, however, is highly individual and will depend on your financial situation and potential upcoming expenses.

One way to figure out a target amount for your rainy day fund is to create a list of some possible rainy day expenses that could come up.

For example, if your health care deductible is $1,500, you’ll want to keep at least that much in your rainy day fund. Car repair prices range, but common fixes on the brakes or alternator cost between several hundred dollars to a thousand (or more). Just in case two rainy days happen close together, it’s a good idea to increase your savings goal.

If you’d like guidance for your unique situation, consider paying the cost of a financial advisor for a bit of advice. They can look at your current finances and help you create an excellent savings plan. They can also help decide how much money to put in a rainy day or emergency fund.

Another way to figure out a target amount for your rainy day fund is to create a list of anticipated larger expenses. These are purchases, costs, and bills that arise only a few times a year, but aren’t always tied to an exact date. They can include:

•   Home gutter cleanings
•   Car maintenance
•   School shopping
•   Annual subscriptions
•   Emergency Childcare
•   Emergency room visits
•   Parking tickets
•   Tax bills
•   Birthday and holiday gifts
•   Plane tickets
•   Appliance replacement

You may want to review this list, as well as look at large one-off expenses that came up last year, to come up with a ballpark figure for your rainy day fund.

How Do I Save for a Rainy Day Fund

The process of building up your rainy day fund is similar to saving money for any goal or major purchase. There are several different strategies to choose from, and you may want to combine a few.

Cutting back on nonessential spending. You may want to take a look at your monthly outlay of money over the past few months. See if there are any simple places you can cut back, such as cooking a few more meals at home each week, getting rid of a streaming service you rarely watch or spending less on clothing each month. The funds you free up can get funneled into your rainy day savings account.

Bringing in some extra income. Picking up a side hustle (like dog walking, babysitting, or food delivery), selling things you no longer use online, or doing some freelance work can help you build your rainy day savings fund.

Take advantage of windfalls. A sudden influx of cash, such as a bonus, cash gift, or tax refund, can be a great–and quick–way to build your rainy day fund.

Keeping the change. Putting all your leftover change in a jar and watching it add up is an old-fashioned, but still effective way to save. When the jar is full you can deposit the money in the bank to give your rainy-day fund a bump.

Setting up automated transfers. Establishing an automatic transfer from your checking into your rainy day savings account on a set day each month (perhaps after your paycheck gets deposited) can be one of the most effective ways to grow this fund. Even if the amount is small, it will add up quickly because the transfer will happen every month no matter what.

Recommended: Benefits of Automating Your Finances

Where Should I Keep My Rainy Day Fund?

You’ll want to keep your rainy day fund in an account that is separate from your spending (so you don’t accidentally spend it) but is still easily accessible.

Good options include a high-interest savings account, money market account, online savings account, or checking and savings account. These accounts typically offer higher interest than a standard savings account but allow you to access your money when you need it.


💡 Quick Tip: An emergency fund or rainy day fund is an important financial safety net. Aim to have at least three to six months’ worth of basic living expenses saved in case you get a major unexpected bill or lose income.

The Takeaway

Setting up a separate rainy day savings account can help you manage those annoying extra expenses that can crop up throughout the year that might otherwise throw you off balance.

As you use your rainy day fund to cover pop-up expenses, it’s a good idea to fill it back up, so you’ll have financial back-up the next time you need it. What’s more, keeping your rainy day fund in an interest-bearing account can help it grow as it sits there, providing you with a sense of security.

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