If you’ve ever faced an unexpected car repair bill or had to make a sudden, costly visit to the dentist, you may have realized the importance of a rainy day fund.
As the name suggests, a rainy day fund is a sum of money set aside to cover one-off expenses like a broken windshield or a sensitive tooth. The costs involved may not be exorbitant, but they still might be significant enough to disrupt your monthly budget. Enter the rainy day fund: an accessible source of money that will cover these types of unforeseen expenses so they don’t throw off your financial balance.
But how does a rainy day fund compare with an emergency fund? An emergency fund is for major expenses brought on by serious events like illnesses that require hospitalization or cause a sudden loss of income. A rainy day fund, on the other hand, is for less serious events that involve significantly lower costs. Ideally, a rainy day fund should be able to cover sudden expenses that fall outside your monthly budget.
Having a rainy day fund is the financial equivalent of keeping an umbrella handy at all times. With adequate cover, you’ll never be stuck struggling to pay bills. So, let’s wade into the details of a rainy day fund.